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20 Aug 2017

Go Direct Personal Finance News  2009

Moneyfacts comments on FSA plans to review annuity pricing

Following the announcement that the Financial Services Authority (FSA) is to conduct a thematic review into annuity pricing, research by Investment Life & Pensions Moneyfacts highlights the financial detriment that consumers could suffer in retirement as a result of their failure to shop around for the best annuity.

The table below highlights the difference between the most competitive annuity and least competitive annuity deals currently available to retirees at a variety of different ages.

Table 1: Difference in annual annuity income between most competitive and least competitive providers. (Annuity rates based on £50K purchase price, standard level without guarantee annuity). Figures as at 31 January 2013.

 

Most competitive
annuity provider

Least competitive
annuity provider

Annual income
Difference

Level without
guarantee age 60

£2,465

£2,110

- £355 (-14.4%)

Level without
guarantee age 65

£2,841

£2,444

- £397 (-16.2%)

Level without
guarantee age 70

£3,201

£2,762

- £439 (-15.8%)

Level without
guarantee
age 75

£3,818

£3,287                    

- £531 (16.1%)

The figures show that an individual with a pension pot of £50K looking to purchase a basic standard annuity could receive up to 16.2% less income in retirement by failing to shop around for the best deal. For a 65-year-old living for another 20 years in retirement this translates into £7,940 less income in monetary terms. The difference would be greater still if the individual in question qualifies for an enhanced annuity on the basis of their health or lifestyle.

Richard Eagling, Head of Pensions at Moneyfacts, said: “The wide variations in pricing that have existed for many years between the most competitive annuity providers and the least competitive annuity providers suggests that the FSA’s review of the annuity market is long overdue. The extent of the detriment that consumers may face as a result of not shopping around when purchasing an annuity may surprise many who automatically assume that the difference may be negligible on the basis that the underlying product is the same.

“Ensuring fair pricing is absolutely vital given that the number of people who will need to buy an annuity to provide an income for life is forecast to rise steeply over the coming years. While average amounts to be annuitized remain relatively low, the priority will be to maximise the amount of income received. For most consumers this will only be achieved by shopping around to obtain the best price for their annuity.”

Some key annuity facts (source: Moneyfacts Treasury Reports: Personal Pension and Annuity trends)

 

Moneyfacts Group

Moneyfacts is the UK’s leading independent provider of personal financial information and our data is used and trusted throughout the financial industry.

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