The Association of British Insurers is encouraging more consumers to shop around for annuities by introducing a compulsory code of practice for insurers.

ABI members will have to remove the annuity application forms from the communication they send to their customers.

The ABI hopes this will stop customers from rolling over pension savings to an annuity with their current provider.

A third of people do not shop around when buying an annuity and may be losing thousands of pounds as a result.

The ABI says the main reason is customer inertia. Many people just complete the application form sent by their existing provider rather than shop around for a better deal.

Maggie Craig, director of life and savings at the ABI, said: “The ABI believes all consumers should shop around to maximise the income from their pension savings. This new industry initiative has been developed to make a significant difference to people’s retirement outcomes.”

Insurance firms have since responded to the suggestions.

Clive Bolton, ‘at-retirement’ director with Aviva, said: “The changes announced will help bring greater clarity and peace of mind for retirees.

“Consumer inertia towards shopping around for the best available annuity at retirement has long been a concern to Aviva. It is crucial that consumers receive the same level of care and advice from their existing provider as they potentially would through the open market option.”

However Tom McPhail, head of pensions research at Hargreaves Lansdown, said firms would still be able to offer a quote which may be less than the best rate.

He said: “More far reaching reform is needed, to ensure pre-retirement communications lead to more retiring investors shopping around for the best rate, and indeed a rate which is appropriate for them and takes account of their health and lifestyle.

“Pre-retirement packs should be much, much simpler. They should present shopping around as the default option, and should not include either an annuity quote, or an application form, from the pension provider.”

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