Shady practices involved in sale of low-yielding annuities are set to end as insurers have announced reforms to ensure people get more help and better outcomes when they turn their pension savings into a retirement income.
Following a recent spate of reports challenging the nature of annuities and the murky practices involved in their sale, Association of British Insurers (ABI) has announced a package of measures aimed at providing retirement savers better incomes from their retirement funds.
According to ABI, all retirement savers can now have a conversation with their pension provider about the options available to them for taking an income. They will also be provided an option to compare the rates on annuities offered by various firms. New rules will require insurers to collect information about their customer’s health and lifestyle, which they can use to shop around for an enhanced rate.
A recent report by watchdog Financial Conduct Authority (FCA) had found that eight in ten retirement savers could get a better income from annuity if they switched providers. The ABI has announced that the new rules have been formed in response to those concerns raised by the FCA.
The trade association also said that the bid to eradicate murky practices involved in sale of annuity products will take 18 months to implement in its entirety.
In the meantime, hundreds of thousands will be exposed to the risk of buying the wrong annuity product.
Otto Thoresen, chief executive of the ABI, said: “The announcement seeks to ensure the retirement income market is meeting the needs of customers with pension pots of all sizes. It is critical to make sure savers have all the appropriate information they need easily to hand to make the best possible choice at retirement. This means changing the retirement process so that shopping around and providing medical information is built into it.”
ABI will require insurers to monitor data on the number of people who take the offer for a conversation to discuss their annuity options, and those who don’t; and compare the outcomes in both cases.
According to Mr. Thoresen, the reforms package represents a new “minimum industry standard” as ABI looks set to release further details on how the proposed changes will be implemented.
Earlier in the year, Pension Minister Steve Webb had proposed reforms that would allow pension savers switch their annuity provider for a better income from their retirement savings. After calling the current state of annuity industry “murky” and “disorganized”, Mr. Webb had said that his proposals aimed at making the private pension industry in UK more flexible and transparent for the over-400,000 savers who buy annuities every year.