Annuity 'failure' costs pensioners £14m

Published on Friday 16 January 2009 18:19

ANNUITY providers are shortchanging pensioners by up to £14 million a year, it has been claimed.

Companies that fail to tell pension investors of their right to use the open market option (OMO) to find the most competitive annuity rate on the market are treating consumers unfairly, said Nick Flynn, director of retirement planning at The Retirement Adviser in Edinburgh.

An investor with a pension fund of just 10,000 who does not take advantage of the OMO can lose up to 530 from their total income, according to Flynn, who called on companies to provide greater transparency and more information on the alternatives available.

"Now more than ever, life companies must act in a way that secures the best outcome for the consumer. The Treasury's OMO review is due and it is widely expected that life offices will be pushed to renew their efforts and help increase the take up of the OMO."

The ongoing review is looking at ways of promoting the OMO and ensuring those reaching retirement are aware of the importance of shopping around for annuities.

But with annuity rates on the way down from last year's six-year highs, consumers also need to take responsibility for securing the best possible retirement income, said Flynn.

"While life companies get their own house in order, individuals must also stop and think twice before locking their retirement income into an annuity rate for the rest of their days. It's a once-in-a-lifetime purchase, which cannot be undone at a later stage.

"Individuals should explore the range of alternative annuity strategies with a specialist financial adviser."