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Categories:Pensions

Billy Burrows: It's about more than just price shopping

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There is absolutely no doubt that many people have benefited from the various campaigns to increase the awareness and availability of the open market option and so the recently announced FSA OMO review is to be welcomed.

However there is more to achieving better outcomes for annuitants than simply shopping for the best rate. Getting the highest annuity rate is just the tip of the iceberg as there are many important issues hidden beneath the surface that can affect the amount of income that pensioners will get from their annuities.

If the industry is serious about helping customers get better outcomes it is time to put the spotlight on the factors other than price that people should take into account before purchasing an annuity.

A good starting point is to look at the three key questions that everybody should consider before investing in an annuity. These are; when is the best time to buy an annuity, what type of annuity and which options and which annuity provider?

The first question may seem simple but is often quite difficult. There are two sides to the when question; when is right from a personal perspective and when is the best time taking into account the state of the annuity market. Just look at what happens when this question is ignored as it was in the run up to the introduction of gender neutral annuity rates last year.

The second question is very important especially as the value from annuities is at the lowest level ever and many people may not even get their money back from future income payments. Therefore it has never been more important to look at the alternatives to conventional annuities such as investment linked and fixed term annuities.

At this point many people remind me that the average pension pot is less than £ 30,000 and at this level advice is not affordable. I believe that this is wrong for two reasons. First many of these people have other sources of pensions or savings so it is important to look at their overall position. Secondly, if we are to treat customers fairly they should have all of the relevant options explained to them.

The third question is just as important because it is essential that the right choice of options is made, e.g. single life or joint life and choice of guarantee period. Finally we get to the shopping around for the highest annuity rate.

Clearly there is more to arranging annuities than simply getting the best rate and so the challenge to the industry is how we can enhance the shopping experiencing for our clients. Perhaps we can learn from the retail market where many firms have increased the quality of service to customers while at the same time offering competitive prices.

Billy Burrows is director of The Retirement Academy

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Readers' comments (3)

  • A couple of months back I obtained an annuity quote from the Retirement Academy's website but found if to be worse by some margin than the best rate available via the Avelo site. I asked Billy Burrows why this should be but he never came back to me with an answer.

    As for the Hargreaves Lansdown annuity desk, anecdotally at least, all options other than a conventional lifetime annuity are dismissed out of hand, they offer no assistance with the paperwork and get higher commission than has ever been available to most IFA's. Hardly value for money.

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  • I do agree with the article in the sense that firstly, rate is not the main issue. Clients can find the best rate if they are so inclined, but most leave it there and do not consider the shape or options.

    Also, the fact that lower values cannot be fully advised is rubbish trolled out by the big annuity firms so to push the non advised sale. Values of sub 50k can be advised profitably if the service is streamlined and overheads are kept low.

    I have put my money where my mouth is and launched an annuity service to cater for this market and am very positve about the initial results

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  • I think drawdown is covered under option 1 but mustn't forget impaired life/enhanced annuities!

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