Make it count

By DAILY MAIL REPORTER
Updated:

 

RULE changes that come into effect next month will force insurance companies to tell their pension holders they can get a better deal on their annuities from other companies. The change should mean that pensioners will get the highest possible income in retirement as they shop around for the best deal.

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Under current laws, millions of savers approaching retirement have to exchange their pension pot for an annual income known as an annuity by the time they reach their 75th birthday. But seven out of ten people still don't realise they can hunt out a better deal - the so-called 'open market option' - rather than plump for their pension provider's own annuity offering.

For years, insurers have failed to spell out to customers that they can shift pension cash to a rival for a much-improved income. Figures from the Government show that income could be boosted by 30% in some cases. Many insurance firms don't go out of their way to inform customers about the various options, which are often hidden in the small print or dressed up in impenetrable industry jargon.

But from 1 September, new rules will force them to advise customers of better rates elsewhere. For pensioners, simply accepting the first annuity offer you receive can mean disaster, as you are stuck with that income for life. The decision is especially critical in today's low interest rate environment. For example, a £50,000 pension could buy an annual annuity (inflation linked and providing a 50% spouse pension) of £2,660 with Prudential or Legal & General. For a man retiring at 65, it's £470 more a year than GE Life's offering.

John Pride searched the entire pension annuity market for the best rate, and improved his annual income by £546 a year.

Retired production editor Mr Pride, 65, had two personal pension policies with Equitable Life. With help from adviser the Annuity Bureau, he converted one policy in April into a Prudential annuity and the other last month into a Norwich Union annuity. Both were standard annuity rates, providing 50% spouse's pension.

City watchdog the Financial Services Authority (FSA) will force insurers to send a simple factsheet to customers - called 'Your pension: it's time to choose' - telling them about annuity options and differences in rates.

You should allow adequate time to look for the most appropriate annuity rate - it's advisable to start three months before you need to draw your pension. Insurers have to send out information to customers at least three months before their retirement date and then a further reminder six weeks before the big day. Independent financial advisers can trawl the market for you. From next March, annuities will be added to the FSA's comparative tables, making it easier for people to pick and choose deals.

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