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Tesco to launch annuity comparison service

Supermarket giant Tesco is turning its attention to the lucrative retirement with the launch a comparison service for annuity deals.

The UK's biggest retailer has revealed it intends to expand its price comparison website, Tesco Compare, to help people more easily shop around for the best retirement incomes.

It follows hot on the heels of an online annuity search tool launched by financial services firm Hargreaves Lansdown, as changes to the way insurers have to sell annuities prompt a rush to tap into the £12billion market.

Announcement: Tesco Compare is to launch a new comparison service for annuities, provided it gets regulatory approval.

A Tesco spokesman said: 'Subject to regulatory approval, Tesco Compare plans to expand its award winning price comparison site to include an annuity comparison service.

'Our application is currently with the regulator and we will update our customers in due course.'

More than 400,000 retirees each year cash in their defined contribution pensions to buy an annuity - which provides an income for the remainder of their lives - and this market is expected to grow exponentially over the coming years as auto-enrolment is rolled out and the number of final salary pensions available continues to reduce.

It will mark the first foray into the retirement sector for Tesco Compare, which already provides comparison services in the insurance, money, utilities and holiday markets.

There are few details yet as to how the service will be run and how much it will charge, as Tesco - which has ruled out offering its own-brand annuities - is currently awaiting approval from the Financial Conduct Authority (FCA).

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Currently, less than half of pension holders shop around for an annuity, potentially losing out on tens of thousands of pounds over the rest of their lives as they instead accept the offer made by their pension provider.

The difference between the best and worst returns on standard annuities can be as much as 25 per cent, while those who qualify for an enhanced annuity - for those with medical and lifestyle conditions that could shorten their lives - could boost their income by a further 20 per cent.

Financial firms are changing the way they sell annuities as of March 1, after a new code of conduct was brought in by the Association of British Insurers (ABI) which means defined contribution pension providers must actively encourage their customers to shop around for an annuity.

Hargreaves Lansdown made the first move last week when launching its free online search tool that allows users to enter details of their health and lifestyle to generate a binding quote. It came under fire when it emerged that people could be charged up to 3.5 per cent of their pension fund if they decide to buy an annuity through the website.

Industry experts said that you could spend less than that on face time with a financial adviser who would be able to provide an annuity option more tailored to individual circumstances.

 

But Hargreaves argued it was filling a gap in the market created by the ABI code and the end of commission-based charging for financial advisers.

It is claimed that this change has seen more advisers turn away those with smaller pension pots (less than £50,000), meaning they need a non-advised route for buying an annuity that will include the benefits shopping around based on their circumstances.

News that Tesco is entering the market as well to provide competition was been welcomed by Hargreaves' head of pensions advice Tom McPhail.

He said: 'It’s great news. We need to get more people shopping around, currently over half of retiring DC pension investors buy their annuity from their existing pension provider.

'Through my work at PICA (Pension Income Choice Association) I have been actively working to address this problem and to get to a position where everyone shops around as a default – clearly we need more players in the market to make that happen.

'In the direct to customer market, just 4 per cent of investors get an enhanced annuity. 48 per cent of HL customers get an enhanced annuity so we know we’re getting it right.'

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