What the ABI’s annuity tool means for your scheme

The market has come under fire for lack of transparency and schemes have been criticised for not adequately helping members through the process.

In June, shadow pension minister Gregg McClymont warned that savers could lose a fifth of pension income because the market is "simply not working".

The ABI Annuity Window, launched last week, is aimed at helping people approaching retirement get the best annuity deal. The tables feature comparisons between annuities offered by its member to 12 example customer profiles that will be updated regularly.

Malcolm McLean, consultant at Barnett Waddingham, said the tables help with transparency but are of limited use to members as they do not give them the full range of annuity providers. "It might tell [members] who not to take an annuity with, [but] not to take who to take it with," he added.

The tool shows a difference in 30 per cent between the lowest and highest annuities, highlighting the need for members to shop around (see box).

McLean added that if the open market option was properly working those offering the lower rates would be pushed out of the market, but that isn't that case.

"It would be good if schemes took more interest in this stage," he said. "[They should] help members exercise their right to take the open market option, but I haven't seen many cases of that actually happening."

The scheme's role

Laith Khalaf, head of corporate research at provider Hargreaves Lansdown, said the service shows schemes why members should be encouraged to shop around.

"Schemes that have pension providers that come at the bottom of the table really need to look at the retirement process and say, "We really need to get people to shop around'," he said.

Khalaf said the best way to get members to look at options is to refer them to an annuity broker. Royal Mail Defined Contribution Plan is one scheme which began defaulting members into an annuity broking business.

In June, the National Association of Pension Funds released a report showing only one in three scheme members switch annuity provider at retirement. The report showed trustees and employers have concerns about going beyond the regulatory minimum when supporting members at retirement.

Mel Duffield, head of research and strategic policy at the NAPF, said at the time schemes and employers have a role in helping choose an advisable broker at retirement, negotiating a good commission for the insurer and ensuring as much of the commission as possible gets rebated back into the member’s pot.

“There was universal support [in the report] for raising awareness, particularly this idea there were regulatory risks to helping members,” she added.