FSA expands internet tables to encourage shopping around for annuities

Under the open market option, which came into force in September 2002, the FSA requires pension providers to make consumers aware of their options when approaching retirement. Consumers do not have to buy an annuity from their existing personal pension provider, they can shop around to find the firm that offers the best rate.

The tables will provide easy-to-understand, impartial information about a range of standard pension annuities accounting for about 80% of the current annuity market. Consumers will be able to choose from:

• single life annuities with three escalation and three guarantee options;

• joint life annuities with three survivor, three escalation and three guarantee options; and

• enhanced rates for smokers.

Consumers wanting to buy annuities with funds from personal pensions, stakeholder pensions and free standing additional voluntary contributions schemes (FSAVCs) will be able to compare annuity income rates paid monthly in advance, by different providers. They will also be able to filter the tables to show those providers that offer impaired life and enhanced annuities. The age range for each annuity will be 50 to 74 years.

The FSA has today published a bulletin outlining the proposed scope of the tables and the information that firms will be required to supply. Responses are requested by 15 November.

Notes for editors

1. The average pension pot is 23,000 and two-thirds of annuity purchases are for less than 20,000.

2. Consumers will be able to choose from three escalation options for single and joint life annuities. They are:

   a level annuity providing the same rate of income for life;
   an escalating annuity increasing in increments of 3% a year; and
   an RPI linked annuity, where the rate of income increases in line with the retail price index, a measure of inflation.

   For both single life and joint life annuities, three guaranteed options are proposed: none, 5 and 10 years. This means that if you die within the guaranteed period your annuity will continue to be paid out to your partner or estate for the remainder of the guaranteed period that you have chosen.

   For joint life annuities there will be three survivor options: 50%, 66.6% or 100%. You have to decide upfront how much your spouses pension will be and when you die the annuity continues to be paid to your spouse at the rate you opted for.

3. FSA research estimates that consumers could gain as much as 35% by shopping around for their annuity. It also shows that consumers with larger funds are more likely to use the open market option.

4. The FSA regulates the financial services industry and has four objectives under the Financial Services and Markets Act 2000: maintaining market confidence; promoting public understanding of the financial system; securing the appropriate degree of protection of consumers; and fighting financial crime.

5. The FSA aims to maintain efficient, orderly and clean financial markets and help retail consumers achieve a fair deal.