Tom McPhail, head of pensions research at Hargreaves Lansdown, believes that the gap between the best and worst value annuities in ‘widening’, with some companies not even making trying to offer value.
Tom McPhail, head of pensions research at Hargreaves Lansdown, believes that the gap between the best and worst value annuities is ‘widening’, with some companies not even trying to offer value.
He was commenting in light of data from the Association of British Insurers (ABI), which showed the variance in annuity rates between different providers.
The data took £21,000 as a typical pension pot, and McPhail calculated that, over a twenty year time period, the gap between the best annuity provider, and the worst, averaged out across a range of hypothetical personal circumstances, was £7,162.
The ABI research concluded that the best annuity for someone investing £21,000, and without any health problems, is provided by Reliance Mutual, while the worst was from Countrywide Assured.
McPhail remarked that a majority of the companies which supplied data to the ABI are offering a rate which is 10 per cent below the best on offer, he believes that firms whose rates are below this ten per cent threshold ‘are not bothering’, he added that, ‘on average only around one third are bothering to offer their customers something vaguely close to competitive terms.’
He added that a plethora of firms had not offered their rates to the ABI survey, instead merely stating that they offered rates through another company or via a panel of options, without disclosing what the actual terms offered to the customer are.
Amongst the firms to decline to offer actual rates to the ABI survey were Fidelity, NFU Mutual, and Wesleyan.
McPhail concluded his comments with the remark that, ‘It is painfully obvious that some companies are making no effort to offer their customers decent value. For investors who do shop around, competitive rates are available; unfortunately we also know that in spite of the recent budget reforms, investors are still being rolled over into their existing provider’s annuity. What’s more many pension providers are failing to offer investors a low cost alternative to annuities, such as a drawdown plan.’