Bristol-based investment and advice provider Hargreaves Lansdown has voiced concerns about the shrinking open market annuity rate sector and says the ABI should reinstate ‘annuity window’ rate tracking.

It says because of the wide disparity between best and worst annuity rates all providers should submit their rates to public scrutiny. It believes that shopping around for the best annuity rate is declining post the pension freedoms and pension providers are ducking the open market.

In the face of “mounting evidence of competition failures in the retirement income market”, the company has written to the ABI asking for it to reinstate the tracking and publication of insurance company annuity rates, the so-called ‘annuity window’.

Tom McPhail, head of retirement policy for Hargreaves Lansdown, said: “The ABI introduced annuity rate tracking because of concerns about market competition, they then quietly dropped it after pension freedom, arguing most investors weren’t buying an annuity any more.

“However 80,000 people a year are still buying an annuity, fewer companies are competing on the open market and fewer investors are shopping around. Unless decisive action is taken quickly, in a few years’ time insurance companies are going to be looking back at another misselling scandal, wondering how it all went wrong yet again.”

“We are calling on the ABI to reintroduce the public tracking of annuity rates, with all providers being required to participate, especially those which no longer compete on the open market. If the ABI doesn’t respond on behalf of the industry then we’d like to see the FCA take regulatory action.”

FCA research found 80% of annuity purchasers could get a better deal by shopping around. The average increase in income available was 6.8%. Based on the ABI annuity window data, the difference between the best and worst annuity rates was typically around 20%, says HL.

The problems of shopping around failure are compounded, says HL, by the trend for annuity providers to withdraw from the open market. Since the introduction of pension freedom, the open market has lost six providers, the latest being Standard Life (see below). There are eight companies offering open market rates, meaning there is a competitive market for those customers who do shop around.

Six providers have pulled out of the open market since the pension freedoms were announced:
• Reliance Mutual (July 2014)
• Friends Life, merger with Aviva (April 2015)
• Partnership Assurance, merger with Just Retirement (April 2016)
• Prudential, still offer in-house annuities (June 2016)
• Aegon, in-house annuities through L&G as ‘preferred annuity supplier’ (September 2016)
• Standard Life, still offer in-house annuities (November 2016)

Among the providers still in the market are:

• Aviva (standard and enhanced)
• Canada Life (standard and enhanced)
• Hodge Lifetime (standard)
• Just Retirement (enhanced)
• Legal & General (standard and enhanced)
• LV= (enhanced)
• Retirement Advantage (standard and enhanced)
• Scottish Widows (enhanced)