High level of understanding around retirement options

Almost three-quarters (73%) of pre-retirees and 89% of annuity purchasers are comfortable with the level of understanding of their retirement options, according to research by the Association of British Insurers (ABI).

Its research, Retirement choices: baseline to measure effectiveness of the code of conduct, included 500 pre-retirement telephone interviews with members in defined contribution (DC) pensions and 1,000 post-retirement telephone interviews with people who recently purchased an annuity.

In March 2012, ABI published a new code of conduct on retirement choices. The intended outcome of the code is that members consider their options and shop around to choose the retirement income product that best meets their needs.

The research found that 87% of annuity purchasers know where to go for help and support, while 91% are aware of the option to shop around.

Nearly two-thirds (63%) shopped around and considered switching pension providers, while 30% actually did make a switch.

More than half (57%) took some form of advice before purchasing an annuity: 17% spoke to their pension provider and 35% spoke to a financial adviser. A quarter (28%) were not able to spontaneously name a source of information of advice at retirement.

It also found:

  • 85% of pre-retirees and 87% of annuity purchasers are aware of the option to defer.
  • 78% of respondents with multiple pension pots, pre and post-retirement, are aware of the option to amalgamate these.
  • 64% of all pre-retirees read the wake-up pack, a third (31%) in full. 
  • Of those reading the information, 85% of both pre-retirees and annuity purchasers consider the information as ‘very’ or ‘fairly easy’ to understand.
  • 32% of pre-retirees, do not feel informed enough to be able to compare quotes from another provider.
  • 77% of pre-retirees feel they have a basic (54%) or good understanding (24%) of the different annuity types. 
  • A further 23% claim they know ‘little’ or ‘nothing’ about different annuity types.
  • Guarantee period (86%) and joint life (84%) annuities have the highest levels of prompted recall among annuity purchasers. 
  • Respondents are least aware of investment-linked (67%), enhanced or impaired (72%) and escalating (74%) annuities.
  • Post-retirement, 89% of annuity purchasers either feel ‘very’ (49%) or ‘quite confident’ (40%) they have made the right decision and felt their annuity fully meets their needs and circumstances.
  • 49% of annuity purchasers, who read the pre-retirement information, believe they are more likely to shop around as a result of it. 
  • 54% of pre-retirees and 49% of annuity purchasers say that speaking with their provider proved helpful and encouraged them to shop around.