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Unexpected item in the bagging area

Unexpected item in the bagging area

When auto-enrolment was first mooted, it was forecast that one of the immediate benefits to the UK would be the arrival of new entrants into the pension manufacture and distribution arenas. Happily, this has been the result on the manufacturing side with the government based National Employment Savings Trust (NEST) being joined by other pension providers such as Now: Pensions and the Peoples Pension.

What was less expected was the narrowing of the distribution side that would happen at the same time, largely driven by the implementation of the Retail Distribution Review (RDR). This caused a reduction in the number of firms and advisers just as the amount of people investing money was being driven upwards as auto-enrolment kicks in.

So it was great news to hear that we finally have a significant new entrant into the distribution sphere – Tesco. The supermarket chain is expanding its comparison website to include annuities along with its other general and life insurance products.

Tesco is bringing all of its distribution power to the world of annuities. People are confident that Tesco will not disappear overnight and so they can have confidence in giving the chain their savings. Consumers’ confidence in the Tesco brand will reassure them that they can invest in any of the providers that are offered.

However, before we go rushing off to the self-service till to scan our annuities through, we need to take stock of the situation. Like most Tesco offerings, the Tesco comparison website is designed for a self-service approach. This is fine for most of the goods Tesco retail, as people buy them regularly and are reasonably in a position to establish the quality and suitability themselves (let’s ignore the ‘value-burger’ issue for the moment – that particular horse has well and truly bolted). The issue is whether Tesco’s entry into the market will actually give a false sense of confidence to shoppers when it comes to purchasing an annuity.

The strength of the Tesco brand could lull people into believing that the comparison they are offering represents the best value they can get on the market – and it probably will for a certain set of circumstances. But whether your circumstances are such that you should be picking from Tesco’s range is not going to be analysed, for that would be moving into the advice arena. Tesco are very clear on their current life products that it is not providing advice and this will apply to their annuity comparisons.

When the consumer knows what he/she wants, the Tesco comparison site will probably be perfect. It’s when someone is unsure of what they need that the problems will arise. And given the “one-off purchase” nature of annuities, consumers run the risk of being stuck with the wrong product until they die. You can get a replacement if your bag-for-life does not live up to its promise but an annuity is yours for ever.

Tom Murray

Twitter: @TomMurrayDublin or @Exaxe

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