Insurers extend annuity cooling off periods
Insurers are extending the window in which you can change your mind about signing up for an annuity, following the drastic changes in last week's Budget.
One of the most interesting aspects of last week's Budget was the Government's move to scrap the rules forcing pensioners to buy annuities with their pension pots. Instead, retirees will be allowed to make unlimited cash withdrawals by dipping into their pots.
Following this announcement, tens of thousands of pensioners have starting pulling out of annuity contracts.
For many retirees, not being forced to buy an annuity is great news. In order to secure this guaranteed income for life, pensioners must permanently surrender their savings pots to insurance companies. In addition, with annuity rates halving over the past 15 years, pensioners now get yearly incomes worth only 5% to 6% of their pots, instead of the double-digit returns of the past.
With the proposed new rules offering flexible, tax-efficient alternatives to annuities, some have warned that the market for individual annuities could shrink by up to 90% over the next couple of years. In response, several leading providers have relaxed their cancellation terms in an attempt to treat customers fairly.
Cooling-off periods for annuities
According to Tom McPhail, head of pensions at Hargreaves Lansdown, 5,000 to 10,000 people have already cancelled or deferred buying an annuity since last Wednesday's news.
For annuities that are not already in payment, providers must give applicants a suitable cooling-off period, during which they can back out of the contract. In most cases, this breathing space is 30 days after a contract has been signed. However, with the rules governing annuities set to change from Thursday 27th March, several providers have lengthened their cooling-off windows.
Courtesy of Hargreaves Lansdown, here's an updated list of the cancellation periods on offer from 10 of the UK's leading annuity providers:
|
Annuity provider |
Usual cancellation rights |
What’s changed since the Budget |
|
Aviva |
30 days from the date the application was signed |
Now 30 days from when the policy has been set up, instead of when the application was signed |
|
Canada Life |
30 days after policy document issued |
No change |
|
Hodge Lifetime |
30 days from the date the application was signed |
No change |
|
Just Retirement |
30 days from date the client received his/her right to cancel (issued with application form) |
No change |
|
Legal & General |
30 days from the date the application was signed |
No change |
|
LV= |
30 days from the date LV= receives the completed application |
Extended to 60 days from the date LV= receives the completed application (this is for customers currently within their existing 30-day cancellation period and for new customers who apply for an annuity in the next month) |
|
MGM Advantage |
30 days after policy document issued |
Extended to 60 days after policy document issued |
|
Partnership |
30 days after client receives a confirmation letter (posted to the client when Partnership processes the application) |
Extended to 11th April 2014 (if current cancellation rights were beyond 11th April, then the standard 30 days still apply) |
|
Prudential |
30 days from when client receives his/her first Prudential quote |
No change |
|
Standard Life |
30 days after policy document issued |
No change |
Source: Hargreaves Lansdown
As you can see, all 10 of these insurers offer at least a 30-day cooling-off period. However, the point at which this countdown begins can vary. Therefore, it is crucial that would-be annuitants check very carefully to establish when their personal cooling-off period ends.
What should retirees do next?
As with all major financial decisions, it pays to take your time and seek expert advice. For some, particularly those with little or no experience of investing, buying an annuity can still make sense. What's more, with competition likely to heat up as providers chase a smaller target market, annuity rates may well improve over time (further helped by interest rates rising from historic lows).
If you are already in the process of applying for an annuity and wish to reconsider your options, then contact your providers without delay. Many firms are already calling recent applicants to determine whether, given the regulatory changes in the pipeline, they wish to withdraw from recently signed contracts.
To make the right decision for your retirement saving, you need to ask several important questions, including:
- Is an annuity right for me?
- Should I pull out of a recent annuity purchase?
- Should I use income drawdown to generate earnings from my pension pots?
- How can I withdraw lump sums while avoiding high rates of tax?
- For convenience, can I combine all of my pots under one roof?
You may want to put these questions to a financial adviser specialising in pensions. You can search for a local IFA using the Unbiased website.
More on retirement:
How to get a big income from a small pension pot
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Comments
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"allow the capitalist system to run properly, and all these anomalies will go away". It [i]is[/i] running properly. It's enriching a few people at the expense of everyone else. That's what the machine is designed to do.
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Delighted to see these changes. Annuities have become, on almost any view, rank value over the last few years. Given the poor rates, why you would want to give away your pension pot for an annuity is beyond me. Drawdown values along with the prospect of being able to pass on some or all of your remaining fund on death were already the better option BEFORE the budget. Better still now. Insurers have grown fat with profits from annuity business. They'll get a shake now. I wouldn't be surprised to see annuity rates being offered mysteriously rise, apparently uncoupled from gilt yields!!
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I can't help but think that all the changes will, as usual for this government, be good for people with a reasonable amount of money and are savings-savy but a disaster for the less well-off that have already been attacked and forced downward to their limits. To be able to take your money and put it somewhere with better rates than annuities is fine if you have money to live on. If you are already struggling to feed your family, the carrot of a large sum of cash, to get by in the short term, will be very attractive. It's easy to think of tomorrow if you are OK today but not so easy when you are desperate.
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26 March 2014