New help provided for annuity deals

MoneyThousands of people approaching retirement each year will get better help to shop around for the best deal under a new industry initiative.

The Association of British Insurers (ABI) is publishing more tailored information on its website from today to help people choose the right annuity deal, which will set the size of their pension for life and could mean thousands of pounds more income over the course of a retirement.

Calls have been made in recent weeks to increase transparency over annuities, which people buy from insurers with their pension savings pot when they retire to give themselves a guaranteed annual income.

The ABI is publishing "specimen" annuity rates offered by its members, based on 12 examples reflecting different customer circumstances.

It stressed this is "not a price comparison website", but will give people more of a flavour of what possibilities are available and the information will be regularly updated.

More than 400,000 people approaching retirement buy an annuity each year and the ABI says that shopping around for the best deal could add hundreds of pounds to someone's retirement income each year.

There are several different types of annuity available, for example ones that will give an income to just the person retiring or those that will also provide for their partner.

Free annuity calculator

If someone is chronically ill, for example if they are a heavy smoker, buying an "enhanced" annuity could also sharply increase their retirement income as they are expected to have a shorter life expectancy.

Last week, pensions expert and former Downing Street adviser Ros Altmann, raised concerns that pensioners could be taking on "the biggest gamble" of their lives when they buy an annuity and many will never live long enough to get back the amounts they put in.

Annuity rates have been in general decline in recent years as people live for longer. Pensions experts have also put the drops down to side-effects of the Bank of England's efforts to kick-start the economy.

The industry moves to make sure people get the best retirement deal possible come at a time when the Government is trying to boost confidence in pension saving to head off a crisis as people are living for longer but not putting enough cash aside for a comfortable retirement.

More than one million people have been placed into pension schemes as part of its landmark automatic enrolment reforms and there have been early signs that the scheme is a success. Auto-enrolment is being rolled out over the next five years.

Otto Thoresen, the ABI's director general, said: " Increasing life expectancy and an era of low interest rates makes the need to secure an adequate retirement income greater than ever.

"The industry is determined to do all it can to help people make the right decision to secure the best possible pension."

A "retirement choices" code was also launched in March, which means that at least two years from retirement a customer's current provider will encourage them to consider their retirement options.

When the pension saver is a few months away from retirement, the insurer will send them more details explaining what options are available to them.

Insurers must now clearly highlight the benefits of shopping around and no longer include annuity application forms so there will be less chance the customer will buy from the current provider without first shopping around.

Tom McPhail, head of pensions research at financial services firm Hargreaves Lansdown, said: " It is highly unlikely that their existing pension company will offer them the best deal, so shopping around is absolutely vital.

"Pension savers have to make sure that they get the best possible annuity and even consider whether they want to buy an annuity at all."

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