We were delighted to sponsor a dinner with the ILC on Monday night in the House of Lords looking at retirement income. We focused on what has already been delivered to improve outcomes for customers, and what needs to still be done.
Joined by the Pensions Minister, the Shadow Pensions Minister, and the Chair of the Work and Pensions Committee, the debate was fast flowing and the consensus was that more needs to be done to support customers making quite complex decisions about a product that they frequently have had little engagement with in the past.
The Financial Services Consumer Panel were also present, and talked through their report which was released on the same day titled ‘Annuities: a time for change’. We agree that despite some of us campaigning for better outcomes for customers, some providers and distributors are not treating their customers as well as they could. To this end, we have released our five point plan for a better retirement:
1. Consumers must be given clear guidance to help them understand the choices available, the importance of their decision and how to compare rates, BEFORE choosing their provider.
The number of customers shopping around is increasing but there are still far too many who through inertia, lack of understanding or not knowing how or where to get information and advice, stay with the company they have saved with for the wrong reasons. All too often these customers are offered poor value annuity rates.
2. Providers MUST obtain medical information and ensure customers understand the potential benefits this can have on increasing their income.
A single, consistent medical questionnaire should be mandatory and used by all providers and distributors to support a common approach to underwriting.Providers currently not offering this should make it absolutely clear to customers that, as a consequence, there may be a severe reduction in retirement income.
3. Competitive annuity rates for existing and open market customers.
The practice by some providers of exploiting customers’ loyalty and inertia by offering their existing pension savers poor value, uncompetitive annuities when they reach retirement needs to stop. Every customer should have confidence that they will be offered a fit for purpose product, which offers good value whether they stay with their existing provider or shop around. Aviva will always strongly encourage its pension customers to shop around first.
4. The limitations of ‘restricted’ panels should be made clear to customers.
Providers or distributors who use ‘restricted’ panels of annuity providers should make it absolutely clear that they are not offering a ‘whole of market’ service in which all providers are considered. In doing so, they must be upfront in explaining the limitations of this approach – specifically the potentially severe reduction in retirement income.
5. Customers should take care shopping around for an adviser.
Some companies like Aviva take great care to bring all available options to a customer’s attention – including alternatives to annuities like ‘drawdown’ products for those customers with larger pension pots. However, ideally customers should obtain independent advice. Customers should be particularly wary of some execution-only websites that receive hefty commissions or charge excessive fees for doing little more than providing quotations.
David Barral, chief executive officer, Aviva UK and Ireland Life, said:
“It’s time that we stopped the poor practices of just a few providers who are pulling down the rest of the industry”.
“There are some providers where it appears that because they have supported their existing pension-saving customers over a number of years, they have the right to exploit this relationship by offering very poor annuity rates at the point of retirement. If they don’t shop around these customers will be completely unaware that the rates being offered by their pension provider are uncompetitive compared to the open market”.
“Every person nearing retirement has the right to a conversation in which they are made aware of the options open to them, the importance of shopping around, and how best to approach these financial decisions. At Aviva, that’s what we offer with all our customers, and we always encourage our pension customers to research the open market”.
“Consumers are not as aware of their retirement options as they are of pension saving so we call on the industry to build on the good work undertaken by companies like Aviva, and the ABI, to raise the bar”.
Alex Hughes, Senior Public Policy Manager, Aviva