06 Change for the better We are just a few months away from new rules that are set to impact on how millions of pensioners in the coming years secure their retirement income. The change creates opportunities not only for traditional pension companies but also for a host of other organisations that are well placed to spread the message among their own customers. Typically, retirees use their pension fund to buy an annuity that pays an income for the rest of their lives. A poor choice at retirement may reduce income by thousands of pounds over a long retirement. More than half of retirees buying annuities currently accept the ‘default’ option offered by their own pension provider rather than shopping around for a better deal. Shopping around is particularly important for those who can often secure a higher annuity income due to health and lifestyle issues. Around one in five of all annuity buyers currently secure an enhanced annuity but research by Just Retirement Limited suggests that up to three in five could qualify for higher rates.
Just Informed Issue 1 Autumn 2012
The Association of British Insurers believes their new Code of Conduct for Retirement Choice, due to come into force in March next year and compulsory for all the organisation’s members, will ensure that the ‘baby boom’ generation is actively encouraged to buy annuities that are appropriate to their needs and lifestyles. Although annuity buyers already have the right to shop around, the new code addresses criticism that pension companies have done little to direct customers to the most appropriate option. The new code imposes tougher conditions on the sales process and adds transparency. This includes clearer and more relevant information and signposting to sources of advice. Most importantly, the customer must be asked a number of questions about their personal circumstances which will prompt consideration of their options, and they must explicitly and clearly be made aware of the risks arising from their answers, particularly from underplaying any health or lifestyle issues. The pension company must also highlight the options, particularly enhanced annuities and the much higher income they can potentially offer, and inform customers whether they offer them.
Just Retirement Limited