Press Release

Research shows annuity customers as more informed than thought

Tuesday, July 29 2008

Annuities

Recent independent research by Legal & General of consumers approaching retirement with personal pensions revealed surprisingly, that 70% said they understood pensions as well as they understood other financial matters. This included mortgages, loans, savings and investments.

When then asked specifically about their pension arrangements, 70% again said that they understood the benefits that they are entitled to receive at retirement from their pension provider.

The research was conducted as part of a programme of initiatives to assess how well people do understand the options available to them at retirement. When asked about their attitudes to shopping around, of the 70% that said they understood their pension and options available, over two thirds of these said they did not intend to shop around.

Of the remaining third, of the 70% that said they knew their benefits and planned to shop around, the majority said they would do this by conducting their own research and/or using a financial adviser.

Separate recent internal research found the FSA website to be the most popular site used by annuity customers who shop around. This was mentioned by 70% of those that said they used the internet to do their research.

Given that the general perception is one of consumer ignorance of pension benefits and a lack of awareness of the ability to shop around, the findings are surprising but possibly help to explain why consumers do not always use the open market option.

Tim Gosden, head of annuity product development for Legal & General’s individual annuities business said; “There is no doubt that the poor uptake of the open market option is an issue. But our research highlights that it would be wrong to assume that consumers are not aware that they are able to shop around or are not aware of the retirement options available to them.”

“It has been a common perception that customers approaching retirement are generally in a state of ignorance about their pension and annuity options, but this independent research questions whether this is actually the case.

With pensions being more under the spotlight in recent years and the development of many excellent websites with a wide range of information on annuities and the rates available, consumers would appear to know a whole lot more than they used to. Having done some homework, it could be that many consumers simply do not feel compelled enough to move to another provider, particularly those with smaller funds.”

Analysis of Legal & General’s own internal annuity business also showed an interesting trend in that the volume of business written on a joint life basis as opposed to single life annuity had increased from around 50% in 2003 to 80% in 2007.

A single life pension pays more income, so historically not including an income for a spouse was the favoured option. Although it is difficult to pinpoint the precise reason for this trend it is likely that improved communications and increased awareness could well be contributing factors.

Tim Gosden continued: "It is important to draw the distinction between those customers who are researching the market and then choosing to remain with the original provider, and those who are not researching the market at all.

"We believe it is important that today's annuity customers do make a conscious informed choice on their future income in retirement, so we actively encourage customers to use an adviser and the open market option to shop around. But we also need to accept that where consumers are informed and confident in conducting their own research, their decision to stay with their existing provider is the right choice for them.

"If they are already with a competitive annuity provider, then that choice is often based on the value the provider offers and the comfort and security it is able to provide for their future income provision."