ABI launches shopping around 'best practice' guide
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The Association of British Insurers says providers will do more to encourage customers to shop around for an annuity following the publication of a ‘best practice’ guide.
The launch of the ‘Best Practice Guide for the Retirement Process’ follows mounting pressure from policymakers at the Treasury, DWP and the Pensions Regulator for providers to improve take-up of the open market option.
ABI acting director of life and savings Helen White says: “This guide now cements together best practice so that customers can be confident they have all the information from their pension provider to help them make an informed choice and shop around for the best annuity on the market for them.”
The guide outlines principles and key requirements providers must follow. It includes a section telling providers they should “encourage the customer to shop around for the most appropriate and competitive retirement income product”.
The ABI says the customer should receive all the information they need to shop around 4 - 6 months before they retire, with no default automatic annuity offer made until 6 - 10 weeks before the retirement date.
However, Pension Income Choice Association chairman and Hargreaves Lansdown head of pensions research Tom McPhail (pictured) says the ABI is “focusing on the wrong problem”.
He says: “Investors are missing out because the system’s flawed, and after nine years of trying to get investors to use the Omo more than half of them still don’t. Improving the open market option won’t solve the problem because the open market option is the problem. Shopping around should be the default for all investors, rather than an option added on as an afterthought.”
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Readers' comments (4)
Lee D | 18 Jan 2011 12:27 pm
Maybe Tom's looking at the wrong problem.
How much do the "half that don't" have in their pots? How much time, effort and paperwork filling would it take - for how much benefit?
Maybe a little behavioural economics would help balance the bean counting scaremongery - and get a sensible picture for the industry of what consumers want - and are capable of.
Targetted actions at specific consumer groups - not knee-jerk blanketing of a market.
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Andrew Brown | 18 Jan 2011 2:31 pm
Agree with the principle that everyone should be entitled to the best rate, but I Think Tom needs to consider the bigger picture rather than trying to facilitate changes that are clearly designed to be of commerical benefit to the Hargreaves annuity desk, rather than the more general population as a whole.
1) Individuals with small fund values below £10K just cannot exercise the open market option because it is not viable for the majority of providers nor advisers to take on a fund value below this figure.
2) Those who have guaranteed annuity rates with their existing provider would lose a fortune if the open market option was made compulsory.
3) The vast majority of providers give more than enough information for the individual to make an informed choice as to whether they wish to exercise of the open market or stay with their existing provider - surely it should be up to the individual to make that choice and not the legislator.
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Julian Stevens | 19 Jan 2011 9:46 am
Obviously there are exceptions to the general principle of obtaining the best (and most suitable) annuity deal by taking one's pensions fund/s to the OM. But, for the great majority of people whose funds are worth more than £10K and whose policies don't have access to GAR's, not to mention those in ill health, the OMO is likely to be the best route.
A simple measure would be to require all providers to issue all pre-retirees with the FSA's very good Money Made Clear booklet (yes, praise again for the FSA!), along with a stand-alone, brightly coloured A4 card (possibly laminated) pointing out in the clearest terms possible the likely merits of taking advice on the OMO.
That aside, I think the ABI should be lobbying/ campaigning for an alternative to any annuity rate-based retirement income option ~ the Retirement Income Bond I've proposed so many times before.
Even though the calculations I've undertaken (using a handy little Capital DrawDown programme that came my way some time ago) such a product wouldn't offer a huge increase in income over a conventional CPA (the insured element to safeguard against early fund burnout couldn't be without a measure of cost), just about any reasonable improvements over the rates available in today's annuity market must surely be worth pursuing. It'd only take one strong, mainstream provider to come up with such a product and they could potentially dominate the market place.
Though they're generally a major pain to deal with, the obvious candidate is Prudential (but, please God, not L&G).
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Lee D | 19 Jan 2011 11:55 am
I doubt the major providers will have a great deal of resource to dedicate to product development just now - they'll be tied in knots trying to get their products RDR compliant, Solvency II feasible, and dealing with nuggets like "removal of compulsory retirement at 75."
The bigger the company, the wider their product offering, the busier they will be right now. Maybe a gap in the market for a smaller company who fancy a change in strategy.
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