The ABI Code of Conduct on Retirement Choices will help the 400,000 people who buy an annuity each year better understand their options at retirement, choose the right annuity for their circumstances and shop around for the best deal, through clear and consistent information provided by insurers. While most people approaching retirement are aware of their options, one in four people feel they do not fully understand their retirement options, with one in three not feeling informed enough to compare quotes from another provider.
The Code will improve customers' confidence in getting the right pension by:
- Providing clear, timely information to help people approaching retirement understand what their options are. At least two years from retirement the insurer will encourage the customer to consider their retirement options. Six months from retirement and at least six weeks from retirement the insurer will send details explaining the various options, such as combining small pots, and shopping around for the best annuity.
- Explaining the different ways to take retirement income. This will include providing for dependants, lifestyle or medical conditions that may mean they are eligible for an enhanced annuity and protecting against inflation.
- Encouraging shopping around for the right pension deal. The benefits of shopping around among other providers will be clearly highlighted along with sources of further advice. Insurers will no longer include annuity application forms so there will be less chance the customer will buy from the current provider without first shopping around.
To monitor the effectiveness of the Code the ABI will conduct consumer research to assess changes in people's retirement awareness and pension purchasing. The impact of the Code will be reviewed in 2014.
As part of the industry's commitment to greater pension's transparency, the ABI will in the summer publish specimen annuity rates across a range of different products offered by members.
Otto Thoresen, ABI Director General, said:
"This Code is the latest initiative in the industry's commitment to helping meet customers changing pension needs. Increasing life expectancy means that many people will be receiving a pension for longer than they were paying a mortgage so the need to make the right decisions at retirement has never been more important. The timely, clear and relevant information provided under the code will significantly increase the number of people reaching retirement with the confidence to make the right pension decision".
Economic Secretary to the Treasury, Sajid Javid, said:
"Raising awareness of the crucial decisions people need to make about their retirement has benefits both for individuals and for the industry as a whole. I welcome the ABI's Code of Conduct in giving customers clearer information and helping people get the best pension deal possible."
Andrew Megson, Managing Director, Retirement at Partnership, said:
"The ABI Code of Conduct for Retirement Choices will benefit the third of retiring pension-holders who start shopping-around but fail to find their way through the difficult process and end up back with an uncompetitive rate with their existing provider. For pension providers, a key part of the new process is finding engaging ways, such as simplified underwriting, that encourage as many policyholders as possible who are eligible for an enhanced annuity to take advantage of this option."
Vanessa Owen, LV= Head of Annuities and Equity Release comments:
"Deciding how to structure income in retirement is one of the biggest financial decisions someone will make in their lifetime. With the shape of retirement changing, and people enjoying a lengthier retirement, it is even more important that they make the most of their pension fund. The retirement market has evolved considerably over the last two decades and customers need greater awareness of all the options available to them. For some time LV= has actively promoted the open market option and believes that the ABI's retirement code is a step in the right direction. While many will benefit from shopping around, it is not simply about the highest annuity rate they can obtain; it's about finding the solution that gives them the flexibility they require. We would urge those approaching retirement to seek advice to help them choose the option that best suits their needs."
