Friday, 23 August 2013

ABI Exposes Rip-off Annuity Rates

Big UK insurance companies offer up to 30% below best market deals for pensions who convert savings to life-time annuity; even ABI director general shocked by differences 

It is not often that a trade association publishes data that shows up some of its own membership in a poor light, but that seems to be exactly what has happened in the insurance industry. The Association of British Insurers (ABI) has decided to publish the rates that its members offer to any pensioners who are considering converting their savings into an annuity. This would pay them a fixed amount each year for the rest of their lives. The figures, which have been published for the first time, have revealed the shocking fact that some of the UK's most important insurance companies are offering pensioners rip-off rates that fall almost a third below their competitors. Otto Thoresen, director general of the ABI has confessed that even he was stunned at just how wide the variation in return was.

Consumers need to shop around before choosing an annuity and not just automatically stay with their current pension provider 

Consumers are constantly being reminded to shop around, especially before choosing any financial products, but the widespread differences here highlight just how important it is for another retiring, or approaching retirement age, to shop around before committing. Industry commentators have noted that consumers almost never get the best deal by remaining with their current pension company. Furthermore, consumers are advised to seek independent advice before opting for an annuity at all, some of which are offering just 3% or less for a 65-year-old person with a life expectancy of 25 years.

Many consumers unaware that the capital does not automatically transfer to partners on death and risk losing large sums because of this. Another pitfall facing those with annuities or considering moving to one is that the main capital does not automatically transfer to the pensioner's partner after death. He or she must specifically request this to happen.

 Market leader Hodge Lifetime not included in table as it is not an ABI member

Although there have been some complaints that the ABI's annuity table does not include some of the best performing products, as the companies offering them, such as Hodge Lifetime, are not members of the association, it does give consumers the tools to make a much more informed decision about which annuity, if any, might suit them best.

Scottish Widows / Clerical Medical / Halifax offered worst rates 

The table uses figures for 12 different customer profiles and the sums quoted are based on the prices that were offered two months ago. They reveal that well-known provider Scottish Widows / Clerical Medical / Halifax offered by far the worst rate, providing just £839.52 in annual income to a single 65-year-old with no health problems, living in Manchester, who invested £18,000. Other poor performers included NFU Mutual, providing £890.76 annually, Wesleyan Assurance Society paying £905.16, Phoenix offering £910.00 and Abbey Life giving £910.16.

Reliance Mutual offered best rates, closely followed by Reassure 

Reliance Mutual topped the scale, offering the same pensioner £1,099.92 each year, closely followed by Reassure on £1,092.36. Aviva also performed well, providing £1,080.36, as did Canada Life, offering £1,077.24 annually. However, someone who had smoked for over 10 years could get a higher income, £1,700 in the case of Reliance, due to having a shorter life expectancy. While the table could certainly be a useful starting point for the 420,000 new customers looking for annuity products each year, it does not replace independent advice that is tailored to each person's specific circumstances. As it only includes ABI members, consumers do also need to look at other companies' performance.

For further information, visit the ABI site at


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