The Association of British Insurers’ new annuity pricing comparison tool has received a mixed response from advisers, with some raising concerns it will cause more savers to make “arbitrary” retirement decisions.
The online ‘Annuity Window’, launched last week, allows savers to compare the different annuity rates offered by 27 insurance companies.
However, it only provides details of the rates available to a 65 year old with an £18,000 pension pot to invest. The rates quoted by the ABI tool are from July and so may not represent the annuity deals offered by providers today.
The tool allows users to adjust the rates based on a limited number of health-related factors, such as whether they have smoked in the last 10 years, have high BMI or lung disease or have suffered a “major stroke”.
Savers can also choose to compare the different single and joint-life rates offered by providers.
Despite its limitations, the Annuity Window has laid bare the huge differences between rates offered by different providers.
For example, someone with health problems may be able to get a 46 per cent uplift depending on the enhanced annuity they choose while standard annuities can see differences of over 30 per cent.
Worldwide Financial Planning IFA Nick McBreen says savers who use the tool risk making “arbitrary” decisions about investing their pension pot.
He says: “A little knowledge is a dangerous thing and there is a risk people will make arbitrary decisions based on the limited information that is available here.
“People will be driven down a commoditised route rather than getting annuity advice. The problem is that once you buy an annuity there is no going back.”
The Annuity Window has also been criticised because it does not include rates from all providers.
Writing for moneymarketing.co.uk last week, Annuity Direct chief executive Alan Higham said: “It will cause confusion amongst consumers and undermine trust in the advice (and non-advice) sector of the at retirement market.
”Hodge Life, who aren’t ABI members, provide the best rates today for a healthy non smoker with a modest pot, but they aren’t on the league table.”
Hargreaves Lansdown head of corporate pensions research Laith Khalaf says: “This was never supposed to be a consumer tool. The whole point of this was to afford some transparency so we could have proper scrutiny of providers and the rates they offer.
“I think it achieves that and it is possible that, over time, providers who are not competitive at the moment will adjust their rates.”