Annuites: when is advice non-advice?
By Steve Ansell, Independent Financial Adviser, Manning and Company
This year the government has announced the launch of a new website tackling the issue of annuities and seeking to advise consumers who currently hold an annuity or are thinking about it.
An annuity is an insurance product, bought on retirement with the money saved in your pension pot. It pays you a regular sum for as long as you live. But buyer beware, there is no going back once you’ve bought it.
It has long been the cry of reputable IFA’s that some clients have taken up the offer of annuities without fully realising the potential consequences of their product choice – or worse, have not received proper advice on its suitability for them.
A recent report by the Financial Services Consumer Panel (FSCP) Annuities: time for regulatory reform , highlights the ever increasing ‘non-advice’ annuities market, branding it ‘confusing and a lottery for consumers’.
Clients seeking information about annuities will often research websites which suggest product choices. What the client doesn’t realise is that they have found a ‘non-advice product’ which holds no consumer protection.
In addition the report showed over half of consumers gave up on non-advice guidance, ‘put off by complexity, information overload and the perceived cost of a full-scale search’.
The report highlighted that often non-advice annuities showed higher commission rates of 5-6% compared with an average of 1.5-2% but had a lower initial cost, which appears attractive to a client with a smaller pension pot.
But what can be done? The non-advice market needs to promote a more transparent marketplace for consumers to find clear and honest information they can use to make informed choices. Consumers need to be aware that, although this is being worked on, it isn’t the case at the moment. Consumers need to tread cautiously and engage in fully understanding the nature of the online non-advice annuities market if they intend to procure their retirement solution that way.
With increased factors highlighting the risks of annuities, it may prove easier and more sensible for those planning retirement to simply look at other options that can often prove better suited to the size of the individual’s pension pot. That’s where a good independent financial adviser can help. At the end of the day, planning for retirement is an important and individual decision, and it’s vital to do so with all the facts, and with peace of mind.