The study for Just Retirement shows that of those who would do things differently, 71% would seek professional help, 43% would shop around themselves and 14% would leave the pension invested. The research has important implications for improving how retirees are guided towards income solutions after the rules around taking pension money are changed next year.
Stephen Lowe, Just Retirement’s group external affairs and customer insight director, said the study shines a light on how pension providers have used their privileged position to keep customers rather than encouraging them to shop around for better income solutions.
Three in 10 did not even know they had choices at retirement while the remaining 70% accepted the offer mainly because they trusted their own provider to offer competitive rates. Six in 10 said they found the provider information ‘quite useful’ but in many cases admitted this was little more than confirmation of how much tax-free cash they could take and what income they would receive from the provider.
Lowe said:
“At the point of making their decisions, three in 10 were under the impression they were compelled to buy from their existing provider which is far too many.”
“Just as worryingly are the reasons given for the inertia shown by those who said they did know they could shop around but chose not to. Four in 10 said they trusted the existing pension provider, three in 10 said it was the simplest or easiest option, two in 10 thought the pot was too small to be worth spending time on maximising, while one in 10 said they believed all providers tend to have similar rates.”
Earlier this year the Financial Conduct Authority’s revealed that 80% of those who bought their annuity from the ceding provider could have received a better deal on the open market. Stephen Lowe said the new research provides further evidence that pension providers are willing to put their own interests above those of their clients despite efforts from policymakers and regulators to ensure they properly promote shopping around. The FCA’s market study and thematic review findings must deliver new rules to ensure the barriers to competition are removed.
Lowe added:
“Our research looked in-depth at how retirees, with pension pots varying from £25k to £75k, who could have bought on the open market and received advice, instead chose to buy what in most cases is a solution offering worse value from their own provider."
“Clearly many of them now recognise they could have done better elsewhere. For example, eight out of 10 said there was no mention during the buying process of enhanced plans that could have delivered a higher income due to medical conditions and lifestyle factors.”
He said that the problem is that customers often ‘don’t know what they don’t know’ which makes them heavily reliant on information from their own pension provider. “Providers can have huge influence not just because of what they tell the retiree, but because of what they don’t tell them,” he said.
“The Government has promised Guaranteed Guidance next year for all pension savers heading into retirement. To deliver better outcomes to more people there needs to be just as much effort on controlling the information and communication between providers and their clients to ensure people are not being led into solutions that are not in their own best interests as has happened in the past.”
