The Association of British Insurers (ABI) has issued a new code that will ensure that people have all pension and annuity options explained to them as they approach retirement.
The new code will apply from March 1st and will mean that pension providers will have to make clear that there are other options available on the open market in addition to annuities provided by their own provider.
95 per cent of defined contribution pension providers are members of the ABI and all of these firms will have to sign up to the code.
Annuities are used to turn a pension savers total pension pot into an income for life. People approaching retirement are advised to shop around using the Open Market Option (OMO) so that they can find the best annuity rates available to them.
There has been criticism that pension providers do not make it clear to savers that they are free to shop around rather than take up an option from the company they have used to save for a pension.
Last year, 55 per cent of the 400,000 annuities purchased last year were bought from the same company that the retiree saved with.
Otto Thoresen, director general of the ABI said: "Increasing life expectancy means that many people will be receiving a pension for longer than they were paying a mortgage so the need to make the right decisions at retirement has never been more important."
Under the new guidelines, providers will no longer include annuity application forms in the retirement packs they send out and will include a note outlining the range of rates that are currently available.
Andrew Megson, Managing Director, Retirement at Partnership, said "The ABI Code of Conduct for Retirement Choices will benefit the third of retiring pension-holders who start shopping-around but fail to find their way through the difficult process and end up back with an uncompetitive rate with their existing provider.”
Other features of the new guidelines are that providers will now send letters to customers two years before they retire informing them to consider their retirement options, including what to do if you have a number of smaller pension pots, whether to combine them or take them separately.
Mr Thoresen added: "The timely, clear and relevant information provided under the code will significantly increase the number of people reaching retirement with the confidence to make the right pension decision."
The code will be reviewed in 2014 but some pension experts have already criticised it, saying that it does not go far enough.
Darren Philp, director of policy at the National Association of Pension Funds (NAPF) said: "The ABI's work is welcome, and an important step forward, but we believe that there is further to go if we are to maximise the chances of people securing the best possible retirement income."
"Many people approaching retirement will need more active help to get them shopping around for the best possible annuity deal. That could be through appointing an annuity adviser or broker to help them, and embedding that process as part of the pension scheme itself."
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