Pensions rip-off scandal

Journalists at the Daily Express must be having the best summer, ever!

First, we had a heatwave. The Express loves a good front page splash about the weather forecast.

Then we had some new ‘evidence’ about the death of Princess Diana. By this time I can only imagine that the Express newsroom has broken out the party poppers.

And now we have a ‘pensions rip-off scandal’ which has hit millions of people.

What prompted this sensationalist headline on the front page of the Express newspaper this morning was the publication yesterday of some sample annuity rates by the Association of British Insurers (ABI).

They published these figures from their members for the first time, using twelve different customer profiles to illustrate what annuity rates could be available.

Most people, when they reach retirement, buy an annuity with their accumulated pension fund to provide a guaranteed income for the rest of their life.

These relatively simple financial instruments do not always offer best value, particularly if you fail to shop around to find the most competitive rate, as these figures from the ABI demonstrate.

What the ABI figures found was price disparity of up to 30% between the best and worst annuity rates on offer for a sample customer.

The Express believes this ‘news’ is worthy of a front page headline and being branded a ‘scandal’, although of course there is nothing new here.

It has always been the case that exercising your open market option at retirement and shopping around for the best deal is essential – assuming that buying an annuity is the best thing to do.

All of this focus on securing the best annuity rate potentially ignores a couple of things.

Firstly, annuity rates are only one part of the retirement income options jigsaw. The various features of an annuity and the ability to qualify for an enhanced annuity (due to health, medical or lifestyle factors) are just as important as shopping around for the best rate.

Secondly, annuities are only one retirement income option. There are others which must be considered before an assumption is made that buying an annuity is the right thing to do.

This makes independent financial advice at retirement not only essential but also incredibly valuable.

Because buying an annuity is a lifelong decision, it pays dividends to seek advice and make the right choice; you only get one shot at choosing the right retirement income option.

Sensationalism aside, the Express have done a good job in raising one of the issues about retirement income options.

If their headline and front page article encourages more people who are approaching retirement to do the sensible thing and speak to an IFA, it’s a positive move and certainly beats Princess Di conspiracy theories for front page value.

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