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Choosing wrong annuities 'is financially damaging'

05 October 2011

Selecting the wrong annuity can be financially damaging for those who are planning out their retirement incomes for their later years in life.

Homeowners aged between 55 and 95 could look into the financial product in order to ensure they have enough money for the rest of their life, but it could backfire.

This is according to a report by the This is Money website, which pointed out annuities cannot be done once they are in place, as they are designed to provide consumers with income from their pension funds for their remaining years.

Worse off

It was noted by the advice site that individuals could find they are worse off by hundreds of pounds every month if they are not careful when they come to select one of the products.

Many people do not shop around when it comes to annuities and simply select an option on offer from their insurer, although this could change as a result of an amendment to regulations.

A new scheme launched by the Association of British Insurers (ABI) means that providers of this nature will no longer be able to roll over pension savings from consumers into an annuities product, as has been the case previously.

Companies providing insurance as well as annuities will also have to remove application forms for the latter product from their mailouts to consumers, although this has been criticised by some parties, who pointed out they will still be able to detail their offers.

Not far enough

"This doesn't go far enough," commented the report from This is Money.

"When the ABI's director-general, Otto Thorensen, took over in June he produced a ten-point wish-list. He wanted insurers to use easily-understood language, treat customers fairly, make the industry more relevant to customers and be quicker to acknowledge errors."

But it was pointed out it is not fair a person may have to put up with a lower standard of living because it has not been explained to them how important it is to shop around for an annuity.

However, Mark Hoban, MP and financial secretary to the Treasury, welcomed the move from the ABI, stating that it is just part of a range of measures designed to make sure consumers get the most out of the annuities market.

He argued it will allow people to be more financially secure in their later years in life and as a result enjoy a more comfortable retirement due to the increased income.

Posted by Claire Ford