News analysis: Nearly half of schemes have or are planning to put in place annuity brokering services for their members, but experts warn this may not be enough to achieve value at retirement.
Research by Towers Watson has found 29 per cent of schemes have implemented annuity brokering services in the past three years and 20 per cent planned to offer the service to members in the next three years.
It’s not about making a one final decision, it’s a decision you should be prepared for, given time to think about it in the years approaching retirement
Peter McDonald
Shadow pensions minister Gregg McClymont previously called for amendments to the pensions bill that would require schemes to either act as independent brokers themselves or ensure members go via an independent broker.
However, having an annuity brokering service does not provide members with advice on whether it is the right time for them to purchase an annuity or whether annuities are the right option for them at all, said Malcolm McLean, consultant at Barnett Waddingham.
“Some annuity brokers will talk to people about these issues as well as the rate but there is always an assumption that when you hire an annuity broker to act for you [that] you know you want an annuity and you know it’s the time for an annuity,” he said.
Schemes also need to ensure that brokers do a whole-of-market search rather than selecting from a small number of large providers, McLean said.
Royal Mail decided to default members of its defined contribution plan into an annuity brokering service, to guide employees through the annuity-buying process at retirement
“You see one company doing it really well and then you see other companies that perhaps had the heart to do it but when it comes down to it they’re not prepared to make that investment,” said Peter McDonald, pensions partner at consultancy PwC.
Schemes are taking the first step towards helping members get better value at retirement by offering annuity brokering services but more needs to be done, he said.
Schemes should educate members about what an annuity is, as well as alternative at-retirement options, early so they can plan three years in advance what they want to do, said McDonald.
“It’s not about making one final decision, it’s a decision you should be prepared for [and] given time to think about in the years approaching retirement,” he said.
