From March 2013, the ABI will publish a list of annuity rates available to show the potential impact of shopping around before buying. The rates will be published on the ABI’s site and the organisation is keen to make the tables available to as wide an audience as possible and will consider other platforms. As well as rates available on the open market, it will include those from providers only offering annuities to existing policyholders.
The comparison tables will offer the annuity rates available for a range of 12 different randomly selected, hypothetical case studies. These studies will be updated every two months to avoid the risk of annuity providers tailoring rates to present themselves in the best possible light. The rates shown will not just highlight the benefits of looking for the most appropriate annuity in terms of whether an enhancement is suitable, but the range of rates available for joint and single life terms.
The new drive also marks the first time the ABI has compelled its members to sign up to an initiative; affiliated firms must abide by the new code which, beyond publicising rates, will also overhaul the sales process. After lobbying from the Pensions Income Choice Association (Pica) – a group formed by several high-profile figures in the retirement industry – all annuity providers will be required to ask those at retirement a series of questions: whether they smoke, have suffered heart disease, etc.
Honesty is the best policy
But awareness of enhanced annuities is only part of the problem. In order to be deemed eligible, the client needs to be completely honest. Having spent a lifetime being conditioned into thinking the way to cheaper life insurance premiums is to smoke less on the application form than in real life, many find it counter-intuitive to open up about their vices to a financial services company. But that is what retirees must do if they are to benefit from the enhanced rates on offer.
Stephen Lowe, director of external affairs at Just Retirement, says this underdisclosure has been an issue, but is easily addressed. His company ran a pilot scheme in 2011, which involved a health professional in the tele-underwriting process. Those applying for annuities would speak to a doctor or nurse about any health issues before speaking to the adviser. In this trial, 70 per cent of annuitants ended up with an enhanced deal. The process has been taken up by a handful of IFA firms, but Mr Lowe would like to see it become the industry standard.
