Annuities have been the hot news topic recently and it seems that everybody wants to criticise them at the moment.
Pensions minister Steve Webb is quoted as wanting to ‘poke the annuity market with a ‘big sharp stick’ and Ros Altmann was recently quoted in the Telegraph saying ’insurers are making an absolute fortune from annuities’. It seems that whichever way you turn someone is being critical about the annuity market and annuity brokers.
So how, in this highly critical climate, can we make sense of annuities and have the confidence that we are meeting the needs of clients?
Part of the answer is to think beyond the actual annuity product itself and consider the wider context in which decisions about the annuity purchase are made.
I have long argued that making the right decisions at retirement involves much more than simply shopping around for the best rate; it involves considering a number of key issues before deciding which options are most suitable for any given circumstances.
In general terms, most people approaching retirement should consider three key questions: When is the right time, what is the right type of policy and options and finally which provider is offering the best terms?
I have discussed these three questions with clients for well over 10 years, so it was comforting to know that these same three questions appeared as part of the customer journey in the Financial Services Consumer Panel report; The Annuity Purchasing Process, published in January 2014. It describes the three steps as follows:
- Firstly, choosing the optimal timing i.e. deciding exactly when to annuitise to suit income needs and also to optimise annuity income.
- Secondly, identifying the right type of annuity (for example standard vs. enhanced, conventional or drawdown/investment linked), combined with the most appropriate features (indexation and/or a partners pension, for example)
- Finally, selecting a competitive rate for the chosen type of annuity.
One of the problems with many people’s approach to retirement is that they often go straight to step three, getting the highest level annuity quote, without considering the other issues.
There is far more to shopping around for the best annuity rate than meets the eye. It is not just a matter of getting the highest annuity quotations; it is important to know what to shop for and when is the right time to shopping.
It is not just the high net worth individuals who need a better customer journey because there are many individuals with pension funds valued above the national average of £30,000 who also need to spend more time looking at the key issues in order to ensure the right decisions are made.
Financial advisers also have their own journey to travel. This journey involves asking themselves their own three questions: How do they treat customers fairly, how do they give compliant advice and finally how do they provide a cost efficient service?
There are many examples of good advice processes but one of the challenges now is make sure that everyone who reaches retirement gets to speak with a retirement income expert.
Increasingly the differentiating factor may not necessarily be the choice between advice or guided sale but between firms that provide a good client journey that is designed to deliver better client outcomes and those firms who have not worked what the journey should look like.
Billy Burrows is head of business development at Annuity Line