The Association of British Insurers has published research of consumer annuity buying patterns and understanding which will act as a benchmark to measure the effectiveness of the trade body’s shopping around code of conduct.
The ABI’s compulsory retirement choices code of conduct, launched in March this year, is designed to improve consumer outcomes at retirement by raising awareness about the different options available and encouraging people to shop around.
The ABI has commissioned Optimisa, an independent research organisation, to carry out an in-depth study of annuity buying behaviour to provide a baseline against which the success of the code can be measured.
The research found 91 per cent of annuity purchasers were aware of the option to shop around, although only 63 per cent said they shopped around and considered switching provider.
Around a third (30 per cent) chose to change provider after shopping around, with 35 per cent of annuity purchasers seeking help from a financial adviser.
The study found that financial advice had a greater impact on consumers than other sources of information, with 44 per cent saying the information from an adviser encouraged them to consider alternative providers and annuity types.
Around three-quarters (77 per cent) of the pre-retirees surveyed said they had either a basic or good understanding of the different types of annuity available, with the remaining 23 per cent claiming they know “little” or “nothing” about different annuity options.
However, there remains a significant awareness gap around enhanced annuities, with just 72 per cent saying they know these products exist. Furthermore, just 16 per cent of people who were potentially eligible for an enhanced annuity actually bought one.
ABI director of life, savings and protection Stephen Gay says: “While there are a lot of positives, there is plenty of room for improvement from this baseline.
“The challenges in changing customer behaviour are well known, but as a result of implementing the code, we hope to see an increase in understanding of retirement options and an increase in the numbers of people actively shopping around.
“This research will enable us to start measuring the impact of the code and assessing what more the industry can do to improve our proposition to our customers – and help them to get the best possible retirement income for their circumstances.”
Optimisa conducted 500 pre-retirement telephone interviews with customers with contract-based defined contribution pensions who had been sent a wake-up pack by their provider between 1 September and 9 November 2012.
Optimisa also spoke to 1,000 customers who recently purchased an annuity using a contract or trust-based DC pension. These interviews took place between three weeks and four months after the annuity purchase was completed.
Hargreaves Lansdown head of pensions research Tom McPhail says the Government should now focus on improving retirement outcomes for trust-based scheme members.
He says: “For auto-enrolment to succeed the Government needs to ensure that all defined contribution pension investors benefit from a comprehensive shopping around process.
“At present there are no formal mechanisms in place to ensure that members of trust-based occupational pensions get either the right type of income or a competitive rate.
“The Pensions Regulator has issued good guidance and many schemes do a good job but there is nothing to stop poor practices slipping through the net.”