Lax pension companies take the flak

Money

Paul Lewis on the web

Lax pension companies take the flak

Pension providers have had their knuckles rapped by the City watchdog for failing to help those approaching retirement get the best returns on their investments by buying the right annuity, writes Holly Thomas

The Financial Services Authority has shopped a number of un-named companies for giving out selective information which omits some very crucial guidance for people looking to secure an income from their hard-earned pension savings.

In particular, firms have been lax in making customers aware they can shop around for the best annuity.

In its report, the FSA said two in five pension providers did not meet even the most basic criteria in providing information for their customers.

An annuity does not have to be bought from their current pension provider - a little known fact among savers.

Providers change the rates they pay regularly, and so there is opportunity to seek out the best rate and boost income in retirement. Yet relatively few people take up the option - known as the "open-market option."

Part of the FSA's study looked at the delays in the transfer of annuity funds when people did make use of the open market option.

In a quarter of cases investigated, insurers failed to pay money within 10 working days of having a complete set of documents to action the transfer.

Overall, delays had occurred in more than 60 per cent of 238 annuity transfer cases reviewed.

During a delay the annuity rate on offer can change, which could cut their income by hundreds, or worse thousands, of pounds a year.

The FSA has now given pension companies five months to revamp their services and meet minimum standards.

In a modern world where we are encouraged to switch our savings and insurance to the best provider possible, it is essential to understand there is no such flexibility with buying an annuity.

If you find a better rate being paid by another provider a year later - tough luck. Once you sign on the dotted line, it's done.

There are a whole host of different types of annuities designed to suit different people. For example, impaired life and lifestyle annuities pay a higher income because life expectancy is calculated to be substantially shorter than average - so the total paid out by the company is reduced.

* Holly Thomas is an award-winning financial journalist and Deputy Personal Finance Editor at the Daily Express and Sunday Express. Holly's views represent her own opinions and are for general information only. Always seek independent financial advice.

* Paul Lewis is away