Greater numbers of pre-retirees are shopping around for an annuity, but some insurers are still not providing clear enough information to their clients about their pension options, new research has found.
The survey of 750 retirees commissioned by the Association of British Insurers, found 67 per cent of respondents who bought an annuity earlier this year used the Open Market Option (OMO) to look for a more competitive rate.
Current rules require individuals to convert their defined contribution pension savings into an annuity, an income for life, by the time they reach the age of 77.
With annuity rates at a record 20-year-low, obtaining the best rate for these savings has become more critical, with annuitants encouraged not to simply accept the rate offered by their ceding provider.
But the survey suggested that only one third of respondents went on to buy an annuity from a new insurer, with most sticking with the rate offered by their current provider.
The survey found just under half of those who remained loyal to their provider did so because they had a good guaranteed rate, while others thought their pension savings too small, for example less than £10,000, to bother shifting their savings.
But 15 per cent of respondents who swap providers said they were unaware that they could buy their annuity from another provider.
One in five respondents in this category who received information from their provider about their pension options found this to be “complicated and difficult to understand” found the report.
The survey also suggested that awareness of impaired life annuities, which can offer up to 40 per cent uplift in rates for smokers or those with medical problems, due to assumptions about reduced life expectancy, was not deeply embedded.
Of those potentially entitled to an enhanced or impaired annuity with a fund of more than £5,000, 51 per cent were aware of this type of annuity, found the survey.
The ABI responded by pointing out that the actual number of respondents who were dis-satisfied with the communications from their providers represented 6 per cent of those surveyed.
“Pension providers have made major improvements to pre-retirement communications, to make clear the options available to individuals,” said a spokesman for the ABI.
“They have used consumer research to shape industry wide improvements, and today’s research shows the vast majority have found current communication useful and clear. Building on this progress, the industry will continue to further encourage consumers to shop around to see if they can benefit from the Open Market Option.”
The ABI said that providers should inform their clients approaching retirement that they may wish to seek professional advice about their options, and ask questions about their medical history, which might boost the rate they are offered.
One annuity provider reacted to the survey by questioning whether those who chose to remain with their existing provider, rather than take their annuity funds elsewhere, were fully informed when they made their decision.
“The ceding fund needs proper investigation for GAR/ Extra tax free cash, penalties etc,” Bob Bullivant, of Annuity Direct, a specialist retirement advisor.
“Once again the ABI look at the end of the process and ignore the bit that can be really important.”
A third of respondents said access to an online comparison told for annuity rates - such is commonly found for other general insurance products like home and motor - would encourage them to shop around.
Providing access to a “trusted” advisor would most likely improve the usage of OMO amongst those who did not shop around.
The research was conducted through interviews with 750 annuity customers who bought an annuity between January and May this year and was sourced from providers representing 84 per cent of the UK annuity market.
According to industry figures, 461,923 individuals bought an annuity in 2009.