Article date: 12 December 2013
Action is needed to create an industry-wide approach that gives consumers greater confidence to make informed choices about their retirement income, Aviva has said.
Today two-thirds of consumers shop around for an annuity which is significantly higher than a few years ago. However, the poor practice by some providers, in continuing to offer their pension-saving customers uncompetitive annuity rates, is preventing far too many people from obtaining the best possible deal.
Despite the efforts of providers such as Aviva, which has led the debate for several years on the importance of value for money and shopping around, some distributors as well as providers continue to exploit customer inertia and a lack of understanding.
Aviva calls on the industry to raise the bar to ensure customers get the best results when facing one of the most important financial decisions of their lives - converting their hard-earned pension savings into an income for life in their retirement.
Aviva's five point plan for a better retirement:
1. Consumers must be given clear guidance to help them understand the choices available, the importance of their decision and how to compare rates, BEFORE choosing their provider.
The number of customers shopping around is increasing but there are still far too many who through inertia, lack of understanding or not knowing how or where to get information and advice, stay with the company they have saved with for the wrong reasons. All too often these customers are offered poor value annuity rates.
2. Providers MUST obtain medical information and ensure customers understand the potential benefits this can have on increasing their income.
A single, consistent medical questionnaire should be mandatory and used by all providers and distributors to support a common approach to underwriting.
Providers currently not offering this should make it absolutely clear to customers that, as a consequence, there may be a severe reduction in retirement income.
3. Competitive annuity rates for existing and open market customers.
The practice by some providers of exploiting customers' loyalty and inertia by offering their existing pension savers poor value, uncompetitive annuities when they reach retirement needs to stop. Every customer should have confidence that they will be offered a fit for purpose product, which offers good value whether they stay with their existing provider or shop around. Aviva will always strongly encourage its pension customers to shop around first.
4. The limitations of 'restricted' panels should be made clear to customers.
Providers or distributors who use 'restricted' panels of annuity providers should make it absolutely clear that they are not offering a 'whole of market' service in which all providers are considered. In doing so, they must be upfront in explaining the limitations of this approach - specifically the potentially severe reduction in retirement income.
5. Customers should take care shopping around for an adviser.
Some companies like Aviva take great care to bring all available options to a customer’s attention - including alternatives to annuities like 'drawdown' products for those customers with larger pension pots. However, ideally customers should obtain independent advice. Customers should be particularly wary of some execution-only websites that receive hefty commissions or charge excessive fees for doing little more than providing quotations.
David Barral, chief executive officer, Aviva UK and Ireland Life, said: “It’s time that we stopped the poor practices of just a few providers who are pulling down the rest of the industry.
“There are some providers where it appears that because they have supported their existing pension-saving customers over a number of years, they have the right to exploit this relationship by offering very poor annuity rates at the point of retirement. If they don’t shop around these customers will be completely unaware that the rates being offered by their pension provider are uncompetitive compared to the open market.
"Every person nearing retirement has the right to a conversation in which they are made aware of the options open to them, the importance of shopping around, and how best to approach these financial decisions. At Aviva, that’s what we offer with all our customers, and we always encourage our pension customers to research the open market.
“Consumers are not as aware of their retirement options as they are of pension saving so we call on the industry to build on the good work undertaken by companies like Aviva, and the ABI, to raise the bar".
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Notes to editors:
- An annuity is a guaranteed income that is paid to retirees for the rest of their life. By using a lump sum from their pension fund or savings to buy an annuity, retirees do not need to worry about budgeting for an unknown period of time.
- Aviva offers highly competitive annuity rates and is a leading provider in this market.
- Timeline of how Aviva has supported UK retirees:
- 2010 - Launched its online retirement centre, one of the first websites to focus on helping UK retirees understand and prepare for retirement.
- 2010 – A TV campaign encourages people to shop around for a better retirement income.
- 2011 – The ‘Rethinking Retirement in the UK’ report sets out how the retirement market can work better for customers and includes a call to make annuity rates more readily available and comparable.
- 2012 – The ‘Helping you retire’ campaign aims to help customers prepare for retirement and includes a dedicated website and video case studies to demystify the retirement process.
- 2012 – Shopping around campaigning continues with customers encouraged to look to the open market for a better retirement income through a TV campaign.
- 2013 – New ‘Rethinking Retirement in the UK’ report continues to call for transparency of annuity rates.
- 2013 – Introduce a new annuity value protection for customers and a one year guarantee.
Aviva media contacts:
Diane Mangan: 07800 691714, email@example.com
Louise Soulsby: 07800 699526, firstname.lastname@example.org