The Association of British Insurers (ABI) is consulting (9-page / 180KB PDF) on proposals which it claims will lead to more transparent annuity rates and help people approaching retirement to choose the best pension deal.
It plans to publish a range of typical annuity rates, based on a regular survey of its members, to help customers understand how individual products fit into the wider annuity market. This will include both rates available on the open market and rates only made available by providers to their existing pension customers.
"Buying an annuity is one of the most important financial decisions people make and shopping around for the right one can make a significant difference to people's retirement income," said Stephen Gay, director of Life, Savings and Protection with the ABI. "Making the market more transparent is a further step in helping people with this decision. We want to get this right so are launching a consultation on our plans and welcome feedback from a wide range of stakeholders and insurance companies."
Annuity rates are used by insurance companies to calculate how much annual pension to pay to an individual for their lifetime in return for a sum of money from a pension fund or part of a pension fund.
The ABI's proposals will form part of its Code of Conduct on Retirement Choices, originally published in March. This Code requires members to provide clear and consistent communications to their customers in the run-up to their retirement. The ABI proposes conducting a regular survey of all its members who offer annuities. It will set out a number of typical customer profiles based on factors including age, fund value, health and payment period; and ask what income each of these will receive from an annuity.
This information will then be made available to consumers on the ABI website. The body also plans to provide related information about the providers, such as whether their rates are guaranteed and whether they will refer customers looking to purchase a pension to a single annuity provider or a panel of annuity providers.
Pensions law expert Simon Tyler of Pinsent Masons, the law firm behind Out-Law.com, said that transparency for annuity rates "should be welcomed".
"Buying an annuity is already a difficult process for pension savers," he said. "They have an array of options - flat-rate or index-linked pensions; with or without an attached dependent's pension; with or without a guarantee period; potential of an enhanced annuity for those in poor health - not to mention the alternative of income drawdown. Anything that makes even part of the process easier will help pension savers get the best and most appropriate pension deal."
Transparency has become "the buzz-word in pensions" following a recent push by the Government for more transparency on pension charges, Tyler said. Pensions minister Steve Webb warned earlier this year that the Government could take legislative action if the industry did not introduce measures to cap "sky high" charges that are "tearing the heart out of people's pensions", while in August the ABI called for the "consistent and simple disclosure of charges" by its members ahead of the introduction of automatic enrolment.
"This move by the ABI to improve the transparency of annuity rates is a step in the right direction," said Webb. "Pensions need to be simple and clear so that people can engage with them. I am determined to ensure that every pound put aside is turned into the maximum amount of pension."