The Government is right to fix the broken annuities market, and our new research shows how vital impartial guidance and advice will be to making the reforms work for consumers.
Less than half of consumers (42%) coming up to retirement trust their pension provider to act in their best interest.
Our new findings show that providers are currently failing to give clear information or guidance when people need it the most. Four in ten (38%) approaching retirement who were contacted by their provider say they didn’t get a clear explanation that they can potentially get a higher annuity if they shop around, and around half (47%) didn’t get a clear explanation that they can get a higher annuity if they have certain health problems.
Much more must be done to improve the quality of guidance for consumers, as we found that a quarter (23%) who have purchased an annuity think that buying an annuity from a different company to their pension provider makes no difference, yet those who did shop around were significantly more likely to feel satisfied with their annuity purchase (76%) than those who did not (52%).
People also need access to proper guidance and advice covering their full financial circumstances as most have many different sources of income for their retirement – nine in 10 (92%) recently retired people have other sources aside from their annuity and state pension. Two thirds (65%) have savings to fund their retirement and almost half (47%) have private investments.
The Government’s proposals in the budget include removing the requirement to buy an annuity from April 2015, allowing people above a certain age (currently 55) to draw down as much or as little of their pension pot as they want, alongside a new legal guarantee that everyone who retires on defined contribution pensions will be offered free, impartial guidance. We will work with the Government and industry to develop this.
Which? executive director Richard Lloyd said:
“The Chancellor is right to fix the annuities market which is clearly not working in the best interests of consumers. Instead of questioning whether people can be trusted with their own money, the debate should focus on how to give them genuinely impartial guidance and advice so they can get the best income in their retirement. We look forward to working with the Government and industry to deliver what consumers need at this critical time in their financial lives.”
The Which? Consumer Insight Tracker finds that six in ten people (57%) who are not retired say they do not know how much they will need per week to have a comfortable retirement, and two thirds (66%) don’t know how much they will need as a total pension pot.
The average amount that people think they would need to live off when they retire is £361 per week, which is about £18,775 a year. This means people expect to need about £12,900 on top of the state pension to live comfortably, which equates to a pension pot of around £207,000 on a fixed annuity or £340,000 on an index-linked annuity.
Notes to editor:
- Research Now, on behalf of Which?, interviewed a sample of 512 people with a Defined Contribution pension who plan to retire in the next 12 months, and 495 people who have bought an annuity in the last 12 months, in September and October 2013. The samples were weighted to take into account the age and gender profiles of the two sample populations in order to be demographically representative.
- Which? Consumer Insight Tracker: Populus, on behalf of Which?, interviewed a representative sample of 2061 UK adults online between 3rd and 5th January 2014. Data were weighted to be demographically representative of all UK adults. Populus is a member of the British Polling Council and abides by its rules.
- Calculations of the size of pension pots that people think they need (based on the weekly income they say they need in our survey) are approximations based on a non-smoking 65-year-old man or woman, as of February 2014.