In a welcome move Aviva have taken the unusual step of arguing that retirees should be forced to shop around for the best Annuity rate.
The head of Aviva’s UK Life arm, David Barral, said: “The current retirement market is failing today’s retirees and the situation needs to be addressed as a matter of urgency,” he continued “without action now, this could mean serious consequences for the retirement income and security for future generations.”
“Aviva is calling for changes throughout the industry to enable retirees everywhere to get the best possible deals in retirement. Greater transparency around the open market option would empower customers to obtain the retirement income they deserve.”
Aviva plan to lobby the government in coming weeks for a change to the rules.
Retirees have two options when buying an Annuity with their pension. The first choice is to accept the Annuity offered by their pension provider, the second is to use the Open Market Option which allows the retiree to shop about amongst all Annuity providers for the best Annuity rate available.
Even the most basic Annuity rates comparison shows that using the Open Market Option can produce a substantially better income, but most people do not shop around for the best rate. In 2010 385,000 bought Annuities but only 32% of people used the Open Market Option to get a better rate.
Using a basic online pension calculator can show the benefit of looking at alternative Annuity providers, not only for a better rate but also to open up the possibility of an Enhanced Annuity which can provide an even higher level of income after taking into account a person’s state of health or other lifestyle issues such as smoking.
It is unusual for an Annuity provider to come out publicly and suggest that retirees should be forced to use the Open Market Option as it is generally accepted that Pension providers do not want retirees shopping about for the best Annuity rates.
Mr Barral attacked other Pension and Annuity providers, saying: “Many companies publish the Annuity rates they offer to their customers – especially those that are actively marketing their Annuity products to new, or ‘external’ customers – but there is still a secretive significant minority allowing no comparisons, which can leave customers greatly disadvantaged if they don’t know they can shop around for their Annuity.”