Article date: 14 February 2014
Aviva has been campaigning to put an end to the practice, by some providers and brokers, of giving consumers a poor deal when it comes to choosing their retirement income. We played a leading role in the introduction of the ABI’s Code of Conduct and have been committed to raising awareness about the importance of shopping around for an annuity.
We want the FCA to identify all those areas where consumers get less than they should on their retirement income, either because providers are taking advantage of existing pension customers’ inertia and lack of understanding, or brokers are charging excessive commissions and not telling their customers that they are only offering annuities from a restricted range of providers.
A market study is the right place to begin a thorough review of the annuities market and we see this as a very positive step for consumers and our industry.
Shopping around, and switching where appropriate, is by far the most effective way to achieve the best annuity rate. Sustained consumer awareness and education campaigns will need to go hand in hand with legislative change to influence consumer behaviour in this area.
The rules around small pots should also be changed to allow consumers to access their savings where an annuity would not offer a value for money option because the level of savings accrued is too low. There are a number of possibilities for simplifying the rules on small pots (called trivial commutation), and we want to see the government address these to give consumers a better deal.
As part of this review, we want the following areas* addressed as a priority:
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 enhanced annuities 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.
Those 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.
*Aviva launched its Five Point Plan for a better retirement in December 2013.
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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 of standard and enhanced annuities.
- Aviva always offers the same rate to existing customers as it does to those shopping around.
- Aviva provides both enhanced and standard annuities
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.