Insurers are set to offer pension investors more encouragement to shop around before being offered a quote to convert their pension pot into an annuity - but campaigners have already said the change doesn't go far enough.
Half of pension investors still buy an annuity directly from their pension provider, without shopping around to see if they can get a better rate elsewhere. The open market option (OMO) to shop around for the best rate has been available for many years, but pension providers haven't been making it clear enough to customers.
New best-practice guidelines from the Association of British Insurers say that a pension customer should be sent all the information they need to shop around for an annuity around four to six months before they retire. No default automatic annuity offer should be made until six to 10 weeks before the retirement date. The benefits of shopping around for an annuity will be clearly set out to the customer.
However, industry campaigners say they are focusing on the wrong problem.
Tom McPhail, chairman of the Pension Income Choice Association, says: "Investors are missing out because the system is flawed. Improving the OMO won't solve the problem because the OMO is the problem. Shopping around should be the default for all investors, rather than simply an option added on as as an afterthought."
You could get a much higher annuity rate through an enhanced annuity, just by declaring any health and lifestyle issues. It is estimated that around 40 per cent of people are eligible for enhanced annuities, but currently they make up only around 10 per cent of the annuity market. Thousands of pensions are missing out on additional retirement income as a result.
Dr Ros Altman, director general of Saga, says: "Default annuities should be banned so that retirees are encouraged to look at the various options available. Offering a default annuity a few weeks before retirement could still mislead many people into buying the single-life level annuity they are offered as a default. This does not provide a pension for a wife or husband, does not protect against inflation, may only have a short guarantee period and may not take account of the individual's health."