New rules put in place and overseen by the Association of British Insurers (ABI) will force pension providers to give consumers all the information they need in order to purchase an annuity. When you save money in a pension scheme, you must transform it into lifetime income and an annuity is the simplest way of doing this. At present, annuities cannot be switched once they are bought so if you purchased an annuity that turns out to be poor value, you are stuck with your poor decision.
Pension providers contact investors once retirement age approaches and explain the level of income likely to be received from the retirement fund. However, some pension providers are guilty of providing incomplete information in a bid to persuade the consumer to purchase an annuity that the provider is keen to sell. Unfortunately, such annuities often represent poor value for money.
However, the new rules mean that pension providers must provide detailed information on the annuity choices while encouraging consumers to shop around. At the moment, less than half of Britons who retire exercise their right to research various annuity providers. This inaction could result in a 40% loss of income over the course of retirement. Additionally, providers must disclose information about alternatives to traditional annuities such as options that take inflation into account or annuities with a short-term which allow the consumer to purchase another short-term annuity at the end of the current cycle.
This is news that has been welcomed across the industry. Thanks to these new regulations, those who invest in pensions will finally have more freedom when purchasing annuities. These rules will apply to over 50 pension providers and if any company fails to comply, they face being kicked out of the ABI. This would be a major blow to their credibility and would see them lose a significant level of custom.
This article has been written in good faith. It is believed to be accurate at the time of writing and is for information only.