The pensions industry will put a new minimum standard for customers in place, building on work already done through the Retirement Choices Code and acting on the challenges set out in the recent report from the Financial Conduct Authority on annuities.
Starting now, ABI members will implement the changes over the next 18 months with completion targeted for summer 2015 committing pension providers to:
- A conversation for customers with their pension provider or an impartial advice or guidance service about their retirement options. This conversation will include a high-level overview of alternatives to annuities as people approach retirement.
- Acomparison of annuity quotes for customers, whereby all providers will offer a comparison, or introduction to an intermediary who will deliver the comparison, early and prominently in their retirement process. The comparison will be offered as an integral part of the process not as an optional extra.
- Ask all customers for information about their health and lifestyle, which they can use to shop around for an enhanced rate.
Ahead of the budget, the pensions industry is also calling on the Chancellor to relax the rules around small pension pots – currently savers can only take their pot as cash if they have less than £2,000 in it. ABI members would like savers with pots of £10,000 or less to have more flexibility around how they access their money and not be limited to having to buy a lifetime annuity.
Making this change would address another of the key concerns of the FCA in its recent thematic review of annuities, that savers with small pots had fewer choices when it came to shopping around at retirement.
Otto Thoresen, Director General, Association British Insurers, comments:
"The announcement today further builds on the Retirement Choices Code and seeks to ensure the retirement income market is meeting the needs of customers with pension pots of all sizes. It is critical to make sure savers have all the appropriate information they need easily to hand to make the best possible choice at retirement. This means changing the retirement process so that shopping around and providing medical information is built into it.
"Providers will also monitor data on the proportion of customers who take up the offer of, a conversation or comparison and those who don’t; and how outcomes vary for these customers. If people have small pension pots, the issue isn’t just about choice of annuity but whether they should annuitise at all. The industry is urging the Government to simplify and relax the rules which state how much money people can take in cash when they come to retire with a small savings pot.
"The new measures set out a minimum industry standard for savers and further build on the compulsory Retirement Choices Code and annuity window introduced last year by the ABI s and its members. The ABI is now working with its members to develop the detail of these changes and their implementation and expect to publish this in the coming months."
Richard Jones, Annuities and Protection Director at Scottish Widows:
"Almost half of people who have an annuity say they were not fully aware of their options at retirement, while a third did not shop around. The annuities market needs to support consumers to ensure they have the best possible choices for their retirement income, which are tailored to their circumstances.
"Providers will do more to support these outcomes; however we will also need improved consumer education and meaningful regulatory change to deliver a retirement income market focussed on good customer outcomes.
“All stakeholders share a collective aim of improving confidence in the pensions industry, and ultimately encouraging people in the UK to save adequately for their retirement."
