I was involved in a twitter exchange last night where it was suggested an annuity is a commodity and customers should be aware of the risks if they enter into a broking site.
I think it’s a huge risk to consider the income for the rest of your life as a commodity, but I can see how it happens. Also I can see that the annuity providers will benefit from this thinking. It’s becoming as easy to broker an annuity as it is to simply taking the annuity from existing provider. That is good an bad. Good because mostly going to an annuity broking site will deliver a better outcome than just taking annuity from existing provider. Bad because it creates the illusion that its going to give you the best outcome.
Customers are simply not sufficiently aware of the choices at retirement. They are not aware enough of the cost of the broking solutions, and they are not aware enough of the options they need to take even within an annuity, let alone outside of it.
There is a fair amount of talk about making shopping around for an annuity compulsory. Whilst a step in the right direction it doesnt go far enough. How about a couple of additional steps in the process at Retirement.
Check it’s the right product
Why don’t we insert, for EVERY person at retirement, a set of questions around their situation. They don’t have to be lengthly or too tricky. There are quizes for this sort of thing already on some websites.
- How much security do you need?
- Do you need money now or later, inflation important?
- Do you need the income, or are you more worried about people you leave behind?
- How comfortable with risk are you?
- How is your health?
Little bit of underwriting
Then for each person ask them some questions about health. This is to get them to think about health, and fact that by declaring the more common ones, they can get more.
If we made that mandatory then you get a report showing which option might be more suitable, and also the difference declaring health or lifestyle issues will make. I think it might make some customers think about things more.
And we shouldn’t stop there..
Developing the online broking market
Firstly, I think these have helped raise the profile of a problem that existed already. Customers are getting better outcomes by going here than simply going with existing provider. But is it enough, when we all know they could get better outcomes.
We seem to be going for miniscule levels of disclosure at all levels of the accumulation stage. I know the commission taken from broking sites is disclosed, but is it clear? If you had the commission figure right beside the income you get I think that might make it clearer.
Also, need to be able to show how much of the market your broking solution is covering. So again something right beside the income saying, we have contacted 20 of the 60 annuity providers in the market to secure this rate.
Finally, the same questions I raised earlier around product selection must be taken before you can buy an annuity online.
I suspect for those customers that want ease and access and trust the brand delivering the service they will continue online. For those really unsure, or unaware, they might seek more advice and realise they can afford it, as they had been paying something anyway.
I think these steps might reduce the continued risk of the income you receive in retirement being viewed as a commodity by those who create the product and broking sites.
The real problem is who pays, and aside from the customer who benefits?