WORTHING, England, February 4, 2014 /PRNewswire/ --
Ahead of the FCA Thematic review of the annuity market, MGM Advantage, the retirement income specialist, has launched a plan which it hopes will help address some of the significant shortcomings in the current market.
Everyone approaching retirement has the right to shop around for their annuity. People do not have to stay with the pension company they have saved with all of their lives. Half the market does shop around, looking for the right type of product and the best deal to suit their individual needs. Where people do shop around the external market, called the Open Market Option, more than half purchase an enhanced annuity, which provides an income based on the individuals own personal health and lifestyle.
However, of the 50% of people who stay with their current pension provider, currently only 6% go on to buy an enhanced annuity, which suggests many of the other 44% receive a poor deal. This equates to £435,809,472m 'lost' income during the course of an average retirement for the 60,328 retirees in the first three quarters of 2013 alone.
Andrew Tully, Pensions Technical Director, MGM Advantage said: "These figures show just what a raw deal many people get at retirement. By sticking with their pension provider, they are effectively losing thousands of pounds in income which is rightfully theirs. That simply can't be right, which is why we have published our Retirement Rescue Plan, which aims to promote the good, address the bad and highlight the downright ugly parts of the current market.
"And it's not all about enhanced rates. Where people stick with the holding provider fewer have access to alternative solutions like drawdown and investment-linked annuities. Given the internal market is clearly broken, the simple solution is to get everyone using the external market. I appreciate there is still work to be done here too, but it does mean many more people will get the right solution and best deal which meets their individual needs."
MGM Advantage Retirement Rescue Plan
- Start communications with customers at least 5 years before their selected retirement age. This will help them consider when and how to take their retirement income
- Introduce a simple pension passport. Give this to people leading up to retirement which should contain all of the information required in one easy place
- Introduce protection when buying from holding provider. Ask a customer buying an annuity from their holding provider to sign a disclaimer. Require the provider to demonstrate this was a suitable purchase - in line with the principles of Treating Customers Fairly
- Disclosure of costs between non-advised sales and advised sales should be on a level playing field. Customers should be able to compare commission and fees between non-advised and advised sales which will make it easier to understand and compare options
- Introduce a good guidance commitment. So all non-advised solutions can help customers:
- consider whether this is a suitable time to take benefits
- review all possible retirement solutions
- consider benefits for partners and consider the impact of inflation
- take health and lifestyle into account
- consider guaranteed annuity rates
Advisers will already offer these services.
- Ensure everyone considers the external market. By pushing people to advice and good non-advised solutions they will get help working out when to take benefits, which retirement solution is appropriate and, if it is an annuity, the suitable shape, and rate, taking into account their health and lifestyle
- Simplify Trivial Commutation. Remove all complexities, and allow people to take up to £10,000 in any individual pension pot as a lump sum without reference to other savings.
Notes to editors
- For someone aged 65, with a £30,000 pension, single life and no guarantees, the difference between the average conventional annuity rate in the open market (£1,750 p.a.) and best enhanced annuity rate with moderate conditions (£2,094 p.a.) is around £344 a year, or £7,224 over an average retirement (Source: Money Advice Service annuity comparison tables as at 3.2.14).
- Source: Analysis of ABI market stats up to Q3 2013. Over 50% of people who go through the 'open market' purchase an annuity on enhanced terms. Up till the end of Q3 2013, only 8,698 people (or 6.3%) purchased an enhanced annuity with their ceding provider. We believe around 50% of these people should also qualify for an enhanced annuity so therefore 60,328 people 'missed out' in the first three quarters of 2013. With average enhancement of £344 a year, or £7,224 over retirement on the average pension income, this equates to £435,809,472 'lost' annuity income.
Six tips to a better retirement
- Consider when you want or need to take your benefits - it doesn't have to be at 'traditional' retirement ages, or when you stop working.
- You will be allowed to take up to 25% of your pot as a tax-free lump sum - most people decide to do this although you don't need to. If you have a small pension pot (below £18,000) you may be able to take the whole pot as a lump sum.
- Consider all the different options to turn your pension pot into an income, such as an annuity, an investment-linked annuity and income drawdown. Each of these comes with different risks - income from drawdown or an investment-linked annuity could fall in future (although hopefully it will increase). With annuities the income is guaranteed but it comes with the risk of inflation which means the income you receive may not buy as much in future.
- Think about how much flexibility you need over your income, bearing in mind you may be in retirement for 20 or 25 years. And if you want to protect your spouse or partner if you die. These decisions often need to be made at outset so it's important you consider them carefully as you may not be able to change things later.
- If you buy an annuity don't just buy it from the company you saved with. Make sure to shop around other providers, giving full information about your health and lifestyle - this can help you get a substantially bigger income.
- Consider taking independent advice. This is a one-off decision and so it's important to get it right. A qualified adviser can help you do that.
About MGM Advantage
MGM Advantage is a retirement income specialist, innovating, growing rapidly and working hard to make the most of people's money in retirement. From offices in London and Sussex, the provider sells its products through financial advisers.
The company attracted the backing of private equity investors TDR Capital, with the deal concluding in late 2013. This resulted in the creation of a new life company using the MGM Advantage brand, and resulted in a split from the mutual society (Marine and General Mutual). The strategy set out in 2008, to focus on the retirement income market, is retained.
MGM Advantage's market leading products include an investment-linked annuity, the Flexible Income Annuity, the first retirement income product to be rated five stars by Moneyfacts. This gives customers the flexibility to change income levels at different stages of retirement and the potential for growth and therefore, the potential to negate the impact of inflation. It also provides a minimum income guarantee and death benefits. Enhanced rates are also available for the Flexible Income Annuity.
MGM Advantage also specialises in providing enhanced annuities designed to provide additional income in retirement for people with health conditions, a poor medical history, or lifestyle conditions, for example smoking.
Through new product innovation and development MGM Advantage is always looking to find ways in which its customers can improve their retirement income, and encourages people approaching retirement to shop around for the best annuity.
MGM Advantage is part of a group of companies owned by ICE Acquisitions SARL (ICE Group). This group of companies includes the new life company (MGM Advantage) and a service company (MGM Advantage Services Limited). MGM Advantage manages assets in excess of £1.4bn (as at December 2013).
SOURCE MGM Advantage