Shop around for the best annuity rate is the message that echoes from the many internet annuity search sites and pages of national press. While I welcome anything that increases customer’s ability to get the best annuity income, I am concerned that simply concentrating on the best rate will mean many customers will end up making poor decisions.
As one of the pioneers of promoting the open market option,I am well aware of the natural reluctance of customers to take an interest in their pension, let alone shop around for the best rate, but as an industry, we need to look behind the attention-gripping headlines and ask, what does it take to get people the best annuity?
The answer is the highest rate, stupid. Wrong, getting the best annuity involves more than just searching for the best annuity because a customer who is serious about getting the best annuity will need an adviser who can provide the best rates, best advice and best service. Sadly, many annuity sellers can only provide one of these and fall down badly when it comes to advice and service.
Simply concent-rating on the best rate means many customers will end up making poor decisions
In the real world of shopping around for annuities, many customers focus solely on getting the best rate for a level annuity. I can cite many cases where clients have been attracted to what seems a best buy annuity, only to find out they have made the wrong decision and been left worse off, not better off.
There are a number of reasons why I am concerned about how annuities are being sold and these include:
- Unfair pricing – some providers are giving better terms to direct customers or selected IFAs
- Commission wars – some insurance companies pay much higher commissions to some annuity sellers which means that smaller professional advisers are at a disadvantage
- Increase in the number of annuity sellers who do not offer advice
I have been involved long enough with annuities to know why these things are happening and not all of them are bad. For example, we all welcome anything that makes it easier for those with smaller pension pots to shop around and it is simply not economic to give someone with a small fund advice.
However, I sense there is a problem with those customers who have above average size pots because they are getting sucked into the best buy annuity process when they should be getting engaging in a best advice process.
Will RDR make things better? I fear not, especially if it results in fewer IFAs providing annuity advice to mass-affluent customers at a time when they need more advice, not less.
Director the Retirement Partnership