Thousands still facing retirement income ‘loyalty sting’ despite new switching rules

Retirees are still missing out on thousands of pounds of retirement income, despite rules introduced in 2019 to encourage more shopping around and switching in the £4bn Guaranteed Income for Life (GIfL) market.

Related topics:  Later Life,  Regulation
Rozi Jones
7th March 2022
pension nest egg annuity retirement old people
"Providers who do the minimum are more likely to keep the customer’s business and the FCA’s figures show the numbers switching has barely improved."

The latest figures from the FCA suggest misplaced loyalty and inertia may be eclipsing extra cash, with 53% of GIfL plans purchased in 2020/21 sold by pension companies to their existing customers.

Stephen Lowe, group communications director at retirement specialist Just Group, commented: “The new rules won’t work unless providers help their customers to secure the extra income. Providers who do the minimum are more likely to keep the customer’s business and the FCA’s figures show the numbers switching has barely improved.

“Industry quotes show that a 65-year-old in reasonable health with an average GIfL purchase (£68,000) would miss out on £490 a year extra income by accepting the lowest offer (£3,324 a year) compared to the best (£3,814 a year), equal to £12,250 over 25 years. However, health history and lifestyle information could push that much higher.

“Since 2019 your existing pension provider has been obliged to show you how its own Guaranteed Income for Life quote compares with the best on the market. The idea being that seeing the difference will encourage people to switch but the FCA’s figures show this doesn’t seem to be happening.

“Customer decisions are heavily influenced by the level of support they are offered. Forward-thinking providers are actively helping their customers by providing modern broking services that make it easy for their customers to compare and switch.

“Many providers are still dragging their feet, knowing if their customers don’t get that level of support, they are more likely to stay put and accept less competitive offers.

“The message for customers is to check if your provider offers a broking service to help you get that better rate. If they don’t then take a moment to consider how much that extra income will add up to over 20 or 30 years of retirement, then decide whether you want to take the first deal on offer.”

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