Government hands providers Omo ultimatum
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The Government will consider taking legislative action if the insurance industry fails to make the open market option operate more effectively.
The statement of intent, contained within the Treasury consultation on removing the requirement to annuitise by age 75, is further evidence of a hardened stance from policymakers.
The consultations says: “The Government is keen to ensure that more people get the best annuity rate by taking advantage of the open market option. Officials will continue to work with the insurance industry to establish how the Omo can be improved and its uptake increased. If it is not possible to make the Omo operate more effectively, the Government will consider legislative options.”
In August, Treasury financial secretary Mark Hoban told the industry to explain why so few people are currently accessing the Omo. An internal email from the Association of British Insurers to its members stressed Government had a “serious appetite” for wholesale reform.
More recently, the Government and The Pensions Regulator said trustees and providers “could do more to issue clear calls to action while encouraging members to shop around for the best annuity deal”.
The Pension Income Choice Association has been campaigning for the Omo to be made the default option for savers. Pica chairman and Hargreaves Lansdown head of pensions research Tom McPhail (pictured) says: “The Government is clearly intent on driving the industry to up its game on assisting consumers in shopping around for retirement income.”
The latest ABI research suggests 67 per cent of people buying an annuity currently shop around. However, McPhail says only 32 per cent of consumers purchased away from their existing provider.
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Readers' comments (12)
Dom Browning | 10 Dec 2010 9:02 am
Funny how it suits Hoban to distance himself from the FSA when it comes to implementing RDR but a week later the better promotion of shopping around for an annuity rate becomes a government priority backed up by a threat against insurers. He sticks his nose in when it suits him but puts responsibility onto the FSA when it does not. The man has double standards.
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Neil Franklin | 10 Dec 2010 9:09 am
So are we regulated by the FSA or by a treasury official?
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Anonymous | 10 Dec 2010 9:41 am
Whilst I think the question of "why isn't the OMO being taken up by more people" is a very fair one, I hate to say the answer is probebly that it's existance has failed to be communicated to the general public (the cynic in me says because it suits the pension providers that way...). I think the FSA need to be more proactive in getting messages like this out to the public - it is one of it's core responsibilities.
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Somewhat confused | 10 Dec 2010 9:49 am
Encourage people to shop round for better rates but put RDR in process which will drastically reduce the number of independent advisors available to give advice at a critical point in anybodys financial planning.
Makes no sense to me but then again I live in the real world !!!!!
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Mark Hobans OMO RDR Pipe! | 10 Dec 2010 9:55 am
And of course Mark needs the IFA to implement OMO - so Mark put that in your RDR pipe and smoke it!!!
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Anonymous | 10 Dec 2010 9:58 am
When clients are advised they will have to pay fees to receive advice post RDR considerably less with consider OMOs. How the FSA fails to accept this is mind blowing! They still are intent on pushing ahead with change, when the current system working perfectly well for most clients and infinitely better than the new system will! Sad but true!
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Bill Wells | 10 Dec 2010 11:08 am
I thought the FSA was running the show. Now, on just one particular issue, the government is getting involved directly - Why?
To the question - the reason why OMO is not taken up as much as it should be is down to a combination of customer apathy, customer fear of being disadvantaged thanks to an FSA that has spent years denigrating IFAs, a lack of understanding of the issues involved, ignorance and inertia.
It will get worse when there are fewer IFA to provide help and when those same IFAs will have to talk about fees immediately after they say "hello".
If my assertions are correct then perhaps the government should be addressing its concerns with the FSA (and its commitment to RDR) rather than threatening the insurance industry.
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Julian Stevens | 10 Dec 2010 11:11 am
Why is the FSA floundering about so ineffectually on this issue that the Government has to step in and tell insurers what it wants them to do? The FSA hasn't even stipulated that all insurers must include one of its (very good) Money Made Clear booklets on the subject (I phoned and asked) ~ how frigging useless is that?
The solution is simple ~ the very first document in every pre-retirement notification pack should be a brightly coloured card which says in big bold letters "YOU SHOULD, AS SOON AS POSSIBLE, SEEK INDEPENDENT ADVICE TO ENSURE YOU FIND THE RETIREMENT INCOME PRODUCT WHICH IS MOST APPROPRIATE FOR YOU AND YOUR PENSION FUND". It's so simple that a 10 year old could figure it out. Why can't the FSA?
Many may suspect the answer to be that the FSA doesn't wish to be seen to be promoting the benefits of independent financial advice (even though their Money Made Clear booklet is very good in this respect ~ but the trouble is that without that brightly coloured card, many people may find the whole busines so intimidating that they don't actually read it).
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terry | 10 Dec 2010 12:31 pm
the major problem is that the majority do not have large pension pots and are not keen to give some of their tax free cash to an adviser to research the market and the feel it is too complicated for them to do themselves, so they go to their provider
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Marty Young | 10 Dec 2010 12:33 pm
The answer is very simple. Ban the implementation of the annuity until the providers come up with a simple form that states something along the lines of "We probaly cant give you as much income from your pension as others. Please look into this before taking your pension with us". Enclose a simple form for the client to sign to say they have looked around and want to go ahed with the annuity from their existing provider. Why make it any harder than that. If the indusstry wont comply then change the law to force it upon them.
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