This will not be a surprise to many, with standard annuity rates on a single life basis being more than 7 per cent for level payments, more than 5 per cent with payments increasing at 3 per cent each year and 4.5 per cent for payments linked to RPI for a 65-year-old.
I mention the points above to highlight that demand for annuities is currently high, relatively speaking compared to the years immediately after pension freedoms. Any adviser who has been through an annuity purchase in recent months has likely experienced just how busy it is.
However, for years now, the two key messages coming from regulators, policymakers and the annuity market alike to customers have been:
- Shop around on the open market to ensure you get the best deal.
- Disclose health and lifestyle information to ensure you get an accurate (and potentially higher) annuity rate to match your life expectancy.
This outage directly impacted both of these points. Not all the open market was quoting, and although not everyone will qualify for an underwritten annuity rate, our internal data shows me 20 per cent of lifetime annuities arranged through Retirement Line year-to-date were on standard terms.
With this in mind, it stood to reason that circa 80 per cent of potential lifetime annuity customers would likely be impacted by this outage. So how did the annuity market react?
From what I have seen and heard so far, the distribution chain handled the outage extremely well and communicated effectively with customers.
I know of specialist firms such as Retirement Line and others who halted lifetime annuity applications for any customers impacted during the outage, ensuring customers do not miss out on any potential additional income for the rest of their lives.
It has resulted in backlogs and hundreds, if not thousands, of re-quote requests taking place as advisers and distributors attempt to catch up. However, from what I have seen from specialists, the messages from regulators and the like held firm, which I am sure will be good news to the Financial Conduct Authority.
Who knows, potentially the FCA could view this outage as a very real test for consumer duty – how did your firm do?
If any lifetime annuity applications went out during the second half of October, are you confident the customer benefitted from the whole of the open market? Did the customer qualify for underwritten terms? If they did not with some annuity providers, it does not necessarily mean they do not qualify with all of them.
As I have alluded to above, from what I have seen the impact on customers has been minimal, efforts were made to mitigate customers potentially opting for a lower income for the rest of their lives due to temporary factors outside of their control. This leads to a potential consumer duty big green tick during this period.
With this said, I am mindful that we are in an age where IT incidents and outages cause much higher levels of distress than ever before, the threats of cyber attacks and data leaks are rife and are reported with greater frequency.
