This will stop consumers from automatically rolling over their pension savings to an annuity with their current provider
The new code will also ensure that customers receive all the information they need to shop around in one easily accessible place. The ABI will also continue to work with Government, consumer groups, and others, to make it easier to shop around.
ABI figures show that increasing numbers of consumers are buying an annuity from a provider which is not their pension provider (46% in 2011, compared to 35% in 2008), and about 70% of people shop around, that is, consider switching provider.
However, about a third of people do not shop around. As a result, consumers may be missing out on a higher income, potentially losing thousands of pounds, over the course of their retirement.
Given about 650,000 people turn 65 in the UK every year, it is critical that the industry supports those individuals to obtain the best possible retirement income.
The ABI has identified customer inertia as one of the key reasons why people fail to shop around. Most consumers receive an application form for an annuity from their existing provider as part of the communication pack posted to them in the run-up to their retirement date.
Many simply complete and sign the application form and send it back to their existing provider, rather than shop around for a better deal.
Maggie Craig, Director of Life and Savings said:
"The Association of British Insurers believes all consumers should shop around to maximise the income from their pension savings.
However, not enough people shop around currently. This new industry initiative has been developed to make a significant difference to people's retirement outcomes."
Mark Hoban, MP and Financial Secretary to the Treasury said:
"I welcome the ABI's announcement on how they are going to help people shop around for an annuity which will ensure that people get the most out of their retirement fund.
"The ABI's announcement can form an important part of a wider package of measures to encourage consumers to get the best from the annuity market, which the Government is working with the pensions industry, advisers, and consumer groups to deliver in the coming months. "
Clive Bolton, ‘at retirement' director at Aviva, said:
"We believe the compulsory code of practice announced today by the ABI is an important step forward in helping retirees secure the right advice at retirement.
"As shown by the ABI, almost a third of retirees simply complete the annuity application form they receive from their existing provider.
"Consumers must be encouraged to discuss their personal requirements at retirement, including important factors such as medical conditions, other existing pension policies, together with the competitiveness of their existing pension provider, all of which should be taken into account.
"The changes announced today will help bring greater clarity and peace of mind for retirees. Our quarterly Real Retirement Report, issued last week, which tracks the finances and concerns of those in retirement, showed that over 55s income and savings have fallen this quarter, while debts have increased.
"Consumer inertia towards shopping around for the best available annuity at retirement has long been a concern to Aviva, as highlighted among other proposals in our report ‘Rethinking Retirement in the UK', published this year.
"It is crucial that consumers receive the same level of care and advice from their existing pension provider as they potentially would through the open market option.
"In summary when dealing with customers who want to retire pension providers should:
1. Encourage customers to discuss their requirement, rather than just sign and return a form.
2. Ask for information on important factors such as medical conditions or additional pension policies and explicitly take it into account.
3. Make the general level of competitiveness of their annuity offering available in the public domain and readily accessible for customers."
Joanne Segars, NAPF Chief Executive, said:
"This is a helpful step which will nudge more people into shopping around, ultimately securing them a better income in retirement.
"Failing to get the best annuity rate can have huge implications. A bad decision can tarnish decades spent in old age.
"The difference between the best and worst annuities is often surprisingly wide, and can result in people losing a quarter of their pension rights.
"Looking ahead, more work is needed to help people get a better deal when annuitising small pots. And too many people are baffled by annuities, so the industry must do more to help them understand the choices available."
Richard Eagling, Editor of Investment Life & Pensions Moneyfacts, said:
“Whilst it is encouraging that the Association of British Insurers has signalled its intentions to persuade more consumers to shop around to get the best retirement income through its new compulsory code of conduct, it is debatable whether simply stopping pension providers from enclosing an annuity application form in the correspondence sent to policyholders as they approach retirement will have the desired effect.
“Much more work needs to be done to si
