Tesco to enter pensions market with annuity service launch

UK retailing giant Tesco is entering the pensions market with the launch of an annuity service.

It would introduce annuity products through Tesco Compare, which currently offers car and home insurance quotes as also deals on household bills.

Data show that between one-third and half of retirees do not shop around for their annuity but accepted the offer made by their pension company, which could be around 30 per cent below the best market rate.

Tesco said its plans were currently with the regulator.

Lloyds Banking Group and Nationwide had, last year, unveiled branch-based annuity advice services.

Tom McPhail of Hargreaves Lansdown, which recently launched a comparison service for specialised annuities, said it was great news as Hargreaves Lansdown had been campaigning for shopping around for some time and there were still a lot many people not doing it.

Though Karen Barrett, chief executive at advisers' trade body unbiased.com, welcomed the initiative, she warned it would be non-advised.

According to Patrick Connolly at advisers AWD Chase de Vere, there was a real danger that those buying without advice would plump for the product paying the highest level of initial income, unaware of whether this was really the most appropriate.

Tesco said it had revealed plans to expand its price comparison web site, Tesco Compare, to help people more easily shop around for the best retirement incomes.

The Tesco move comes close on the heels of an online annuity search tool launched by Hargreaves Lansdown even as changes to the way insurers had to sell annuities led to a rush into the £12 billion market.

According to a Tesco spokesman, Tesco Compare planned to expand its award winning price comparison site to include an annuity comparison service, subject to regulatory approval.

The company's application was currently with the regulator and it would update its customers in due course, he added.

Over 400,000 retirees each year cash in their defined contribution pensions to buy an annuity - to get themselves an income for the remainder of their lives. The market was expected to grow exponentially over the coming years as auto-enrolment was rolled out and the number of final salary pensions available continued to drop.

It would mark Tesco Compare's first foray into the retirement sector, which already provided comparison services in the insurance, money, utilities and holiday markets.

Not many details have yet been made public as regards how the service would be run and how much it would charge, as Tesco, which had ruled out offering its own-brand annuities, was currently awaiting approval from the Financial Conduct Authority (FCA).