Controversy over annuities – products people buy when they retire to guarantee them an income – has erupted again. Vicky Shaw reports

A NEW investigation has been announced into the retirement annuities market, after the City regulator found it is not working well for consumers.

An annuity is a one-off purchase that many people – about 420,000 a year – will make when they are approaching retirement. When you buy one, the money you’ve built up in your pension savings is converted into a yearly income, normally lasting for the rest of your life.

Obviously, it’s important to get such a “once in a lifetime”

right; but the new findings by the Financial Conduct Authority (FCA) suggest that many people are not.

Part of the reason is that there’s a tendency when people are buying annuities to stick with their existing pension provider, rather than looking elsewhere where they might find a better rate.

The FCA found that about eight out of ten people who had stuck with their existing pension provider to buy an annuity could have been better off by shopping around and switching.

On average, the benefit of switching would equate to someone having saved an extra £1,500 into their pension before they retired.

So why don’t more people switch? Well, it could be that the wide array of annuity products out there, catering for different circumstances and needs, leave the customer feeling confused.

Some provide for you alone, while others will help you to provide for a loved one. There are also annuity products that cater for people with ill health, such as smokers, and these can often provider higher incomes as the person is expected to have a shorter lifespan.

Martyn James, of the Financial Ombudsman Service, which resolves disputes between consumers and financial firms, says picking the right annuity can feel like a minefield.

With the baffling terms and conditions often used, “it is inevitable that people rely heavily on the advice they get from big business,” he says.

“We’d like people to feel empowered to speak up if they don’t understand what they’re getting into.”

The service wants to see providers doing more to explain to people “in plain English”

exactly what an annuity is and how it works.

Ros Altmann, an independent pensions expert and a former Downing Street advisor, adds that even when people do try switching to a different provider for an annuity, they are often put off by red tape.

“Reams of paperwork, full of jargon means that most ordinary people have no hope of really understanding the complexities of annuities, buying from an existing provider is far faster, easier and saves much form-filling and chasing up of information.”

Certainly, the FCA’s investigations support the idea that many of us are unprepared for the range and complexity of the decisions we will need to make when we retire.

But do not despair. Like most financial decisions, with patience, research – and hopefully a shake-up of the annuity industry – you can reach the right decision for you and your future.