Many 'not informed' about annuities

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Almost half of people approaching retirement who buy an annuity are not making a fully informed decision based on "real" shopping around, the regulator estimates.

Awareness that it is possible to shop around for a better deal is "high", with nine out of 10 consumers saying they know they could go to a different pension provider, the Financial Conduct Authority (FCA) found.


The research suggests that about three-fifths of consumers do shop around for an annuity - but some of those who claim to have done this made a decision without actually comparing quotes.

The regulator estimates this means almost half of people buying an annuity are not making a decision based on "real" shopping around that involves comparing quotes.

During 2013, the FCA also reviewed 13 price comparison websites that allow people to buy an annuity direct, which can save money by foregoing professional financial advice.

Industry estimates suggest that one in 16 (6%) people buying an annuity visit one of these websites.
The FCA said it would expect these websites to make it clear that buying annuity cannot be reversed and also looked to see if information was clear and any costs were prominently shown.

All of the sites raised concerns and all but one gave information which the FCA believes was not fair and clear, and was misleading.

The FCA has been helping these websites make changes to improve their service and it expects all firms offering an annuity comparison service to consider its findings and make changes where necessary.

Its research also suggested that the Government's landmark automatic enrolment scheme, which has been launched to encourage retirement saving by placing people into workplace pensions, could potentially reduce a saver's engagement "as they no longer need to engage with or actively participate in pension-saving activities".

The FCA's review of consumer research suggested that people are not prepared for the "range and complexity" of the decisions they need to make at retirement.

The type of annuity they buy requires them to make judgments about how their lives will pan out in the future and protect their income against uncertain events.

It said: "This is something that is very challenging, even for consumers with high levels of financial capability."

People often opt for a standard annuity that will pay an income for them alone, and the complexity of the decision-making process as well as uncertainties about what the future holds may prevent some people being able to work out that they or their spouse might be better off in the longer term if they chose a different option, the FCA found.

Its review said: "It is well documented that inertia acts as a barrier to shopping around and leads consumers to the easiest and most straightforward choice available to them, which in the current cases involves accepting their existing pension provider's annuity."

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