The news followed years of criticism that millions of people have been sold the wrong pension income plan when they retire, leaving them missing out on tens of thousands of pounds. Last year, around half a million people bought an annuity, which gives a regular income until death, based on the size of someone’s pension pot. But a large number of retirees simply take the plan offered by their pension company, which could offer a lower payout than they could get elsewhere. So by not shopping around for the best retirement deal, pensioners end up losing out.
The gross potential gains for pensioners in the annuity market was reported by the National Association of Pension Funds (NAPF) and the Pensions Institute, showing that retirees were being short-changed by up to £1bn from their total future pension income because serious obstacles stop them getting the best annuity deal.
Joanne Segars, chief executive of NAPF, said: ”At the moment, consumers are dealing with an unfair and opaque system that is preventing too many of them from securing a decent income for their old age.”
The FSA investigation will look at how badly off consumers end up by not shopping around. It will also examine whether there are particular pension firms that leave people worse off by sharp practice, or even groups of consumers who are more likely to end up with a lower retirement income. Research by the financial website Moneyfacts on annuity payouts, showed that a 65-year-old retiring with a £50,000 pension pot could receive up to 16.2 per cent less income by failing to shop around for the best deal. That would leave them £8,000 worse off over 20 years. The figures would of course be much higher if they had a bigger pension pot!
The FSA doesn’t expect to complete its investigations before it hands over a range of responsibilities to the new Financial Conduct Authority in April 2013. Once the initial investigation is concluded, evidence will be taken forward by the FCA in the second half of this year, the FSA said. There is likely to be little real progress before 2014.
So where does that leave any of you facing retirement in the next 12 months? To avoid being caught in the annuity trap don’t just take the annuity income offered by your pension provider. Shop around and seek independent advice before choosing the right type of annuity. This could make a massive difference to the outcome for you from a pension plan.
