Friday, 14 February 2014

Annuities Report - Stating the Obvious?

The FCA today reported that the Annuity market is not serving customers well within the UK.  Apparently, they have also noticed that the weather has been wet recently and that it gets dark at night!

Annuities are the traditional vehicles with which people convert their retirement pots into income for the remainder of their lives.  The value you extract from an annuity depends on a number of factors that you cannot control, such as mortality trends and the prevailing climate for Government Gilts.  However, there are several factors within your control as a client that do influence the amount of money you get.  Obvious in this regard are whether or not you select the option for a pension to continue after your death for your spouse and the ability to build annual increases into your payments.

Equally influential, but somehow missed by many of the 420,000 people who buy annuities each year is the commercial approach of the provider you choose to provide your annuity.  Some providers have slicker systems than others, some are better at purchasing the Gilts that secure the annuity and some are just plan greedier than others.

Because of these factors, notably the latter, the FCA claims that eight out of ten annuitants could be getting a better deal – typically 7% more income for life from the same fund value!

The Regulator further found that even comparison websites do not inform the consumer in a helpful or unbiased manner, some excluding a number of providers and some even skewed toward ‘favoured’ ones.

No doubt this research took many long hours and took in an enormous amount of data – at great cost to us all.  What absolutely staggered me in the interview I just watched with the Chief Exec of the FCA was the total absence of any mention of taking financial advice at this critical time.

Your existing provider regards you as an inert and captive audience and the urge for them to take advantage of this is predictably irresistible, while comparison websites are only as good as the data that drives them and the degree of research used in their upkeep.

An Independent Financial Adviser whom you engage to advise on your retirement options has a duty of care, not only to research the best solution for your needs, but also to demonstrate this with appropriate justification and reasoning.  The IFA will also guide you through the various options, such as spouse protection and inflation measures in such a way that you understand fully the background to this, one of the most important financial decisions of your life.

I absolutely agree with what has been said in this report, though I could have told you the same for free and, though I have not yet read the report itself, none of the verbiage blown out in its release even mentions the need for quality independent advice. 

For goodness sake!  There are professionals who are accustomed to understanding their clients’ needs and tailoring solutions to those needs.  In the same way that it would be inadvisable to attempt open-heart surgery after watching a ‘how to’ clip on YouTube, why are we even speaking about comparison sites and ignoring the valuable role played by professional advice?  

Come on FCA!  The role of a report such as this one is to help, inform and empower – not just to worry people.

We are now told that the FCA needs a further 12 months to come up with its 'solution' to this problem.  I can tell you now in twelve seconds - Take Advice!