The new insurance industry code of conduct for annuities is a step in the right direction. However, more needs to be done to encourage pension scheme members to shop around for the best deal, according to Paul Marco, head of defined contributions at Mercer retirment business in the UK.
In an interview with The Actuary Magazine he said that ‘most people didn’t know where to start when shopping around for annuities and as such were likely to just stay with their current provider. The code tells providers not to rely on customer inertia, however this is incredibly difficult to police. By offering members a range of market-based quotes up front, and not just a quote from the sitting insurer, the member’s chances of purchasing a far better annuity are greatly improved.’
In particular, Mercer said that, as well as encouraging members to shop around, customers should also be told that quotes from the sitting insurer are unlikely to be the best available in the market. ‘This needs to be prominent, rather than tucked away at the end or buried in the small print,’ he said.
‘Although the code itself is a positive development it is very disappointing that compliance with it is not being made mandatory earlier than March 2013. In the meantime 1000’s of retirees will be losing £100’s or £1000’s of pounds a year in income for the rest of their lives’
Finally Mercer called on the government to use the introduction of auto-enrolment later in the year as an opportunity to look at making the provision of an annuity broking service a key aspect of what a good workplace pension plan offers.