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'Lack of trust' in pension firms
12:14am Sunday 23rd March 2014 in © Press Association 2014
Consumer group Which? said that the Government is right to be trying to fix the 'broken' retirement annuities market
Less than half of people approaching retirement trust their pension provider to act in their best interests, according to research by consumer group Which?
The group said that the Government is right to be trying to fix the "broken" retirement annuities market, after it found that just 42% of people reaching the end of their working lives think their pension provider will do what is best for their customer.
The research indicates that many providers are currently failing to give people sufficient guidance on how to get the best deal with their pension pot.
Nearly two-fifths (38%) of people who were contacted by their provider as their retirement drew near said it was not clearly explained to them that they could potentially get a better income by shopping around.
Chancellor George Osborne announced radical reforms around pension pots in last week's Budget, which will make it easier for people to cash in all or part of their pension savings when they get to retirement and mean they no longer feel forced to use the money to buy an annuity, which would give them a fixed yearly income.
He has also pledged £20 million to enable people to get free, impartial face-to-face guidance on what their options are.
The new guidance duty will be imposed on providers from April 2015 and the Financial Conduct Authority (FCA) will be asked to co-ordinate the standards that the guidance will need to meet.
Retirement annuities have become increasingly controversial due to plunging rates in recent years and concerns that many people would have been better off shopping around for a better annuity deal than sticking with their existing pension provider.
Annuities are a one-off decision and they are usually irreversible, which means there is no going back if your circumstances later change.
There are also several different types of annuity, including ones which tend to pay out more for people who are in ill health because they are expected to have a shorter lifespan.
Around half (47%) of people surveyed by Which? said they did not get a clear explanation that they can get a higher annuity if they have certain health problems.
Some commentators have raised fears that the plans to make it easier for people to unlock their pensions could lead to some people underestimating how long they will live and burning through their pension savings too quickly.
Others have suggested more pensioners will invest their money in the buy-to-let property market instead of buying an annuity, which could inflate house prices further.
Which? executive director Richard Lloyd said: "The Chancellor is right to fix the annuities market which is clearly not working in the best interests of consumers.
" Instead of questioning whether people can be trusted with their own money, the debate should focus on how to give them genuinely impartial guidance and advice so they can get the best income in their retirement.
"We look forward to working with the Government and industry to deliver what consumers need at this critical time in their financial lives."
Which? found that more than three-quarters (76%) of people who shopped around for an annuity felt satisfied with their purchase, compared with 52% who had not.
More than 500 people with a defined contribution (DC) pension who plan to retire in the next 12 months, and nearly 500 who had bought an annuity in the last 12 months, were surveyed for the research towards the end of last year.