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Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

FSA Plans to Review UK Retirement Annuity Pricing

Personal_Finance / Pensions & Retirement Jan 31, 2013 - 03:07 PM GMT

By: MoneyFacts

Personal_Finance

Following the announcement that the Financial Services Authority (FSA) is to conduct a thematic review into annuity pricing, research by Investment Life & Pensions Moneyfacts highlights the financial detriment that consumers could suffer in retirement as a result of their failure to shop around for the best annuity.

The table below highlights the difference between the most competitive annuity and least competitive annuity deals currently available to retirees at a variety of different ages.


Table 1: Difference in annual annuity income between most competitive and least competitive providers. (Annuity rates based on £50K purchase price, standard level without guarantee annuity). Figures as at 31 January 2013.

 

Most competitive
annuity provider

Least competitive
annuity provider

Annual income
Difference

Level without
guarantee age 60

£2,465

£2,110

- £355 (-14.4%)

Level without
guarantee age 65

£2,841

£2,444

- £397 (-16.2%)

Level without
guarantee age 70

£3,201

£2,762

- £439 (-15.8%)

Level without
guarantee
age 75

£3,818

£3,287                     

- £531 (16.1%)

 

The figures show that an individual with a pension pot of £50K looking to purchase a basic standard annuity could receive up to 16.2% less income in retirement by failing to shop around for the best deal. For a 65-year-old living for another 20 years in retirement this translates into £7,940 less income in monetary terms. The difference would be greater still if the individual in question qualifies for an enhanced annuity on the basis of their health or lifestyle.

Richard Eagling, Head of Pensions at Moneyfacts, said: “The wide variations in pricing that have existed for many years between the most competitive annuity providers and the least competitive annuity providers suggests that the FSA’s review of the annuity market is long overdue. The extent of the detriment that consumers may face as a result of not shopping around when purchasing an annuity may surprise many who automatically assume that the difference may be negligible on the basis that the underlying product is the same.

“Ensuring fair pricing is absolutely vital given that the number of people who will need to buy an annuity to provide an income for life is forecast to rise steeply over the coming years. While average amounts to be annuitized remain relatively low, the priority will be to maximise the amount of income received. For most consumers this will only be achieved by shopping around to obtain the best price for their annuity.”

Some key annuity facts (source: Moneyfacts Treasury Reports: Personal Pension and Annuity trends)

  • The average standard annuity income for a male aged 65 fell by 11.5% in 2012, the biggest annual fall since 1998, when annuity income fell by an average of 13.7%.
  • Average annuity income has now fallen in 15 out the last 18 calendar years
  • Overall, the average annual annuity income for a male aged 65 years old has fallen by 56% since Moneyfacts first started to research annuity rates back in August 1994, whilst the equivalent income for a 65-year-old female has reduced by 50%.

www.moneyfacts.co.uk - The Money Search Engine

Moneyfacts.co.uk is the UK's leading independent provider of personal finance information. For the last 20 years, Moneyfacts' information has been the key driver behind many personal finance decisions, from the Treasury to the high street.


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