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38% fail to meet OMO rules and principles

Nearly 40 per cent of companies that write pension annuity business provide literature to customers approaching retirement that fails to meet Open Market Option rules and principles, according to the FSA.

The regulator’s thematic work on OMO, first revealed by Money Marketing in May, shows that 44 per cent meet the minimum requirements and only 18 per cent demonstrate best practice for OMO literature.

The FSA says that several firms stopped short of explaining that exercising an OMO can result in a higher pension and other firms were not clear enough in their explanation of the advantage of shopping around.

The regulator also found that delays occurred in over 60 per cent of 238 annuity transfer cases reviewed.

It says that delays can be caused by various parties in the transfer process including transferring and receiving pension firms, intermediaries and customers.

The complexity of the process and confusion caused by the diversity of forms used to complete transfers were identified as key reasons for delays.

On transfer delays, the FSA says it will be working with the industry, through the Association of British Insurers, to reform the overall process and to achieve standardisation and rationalisation of the systems and documentation involved in fund transfer.

FSA director of TCF and insurance sector leader Sarah Wilson says: “The decision on whether to buy an annuity from a current provider or to switch to another insurer on the open market can influence an individual’s lifetime income. Poor communications from insurers may result in people making poor decisions or failing to take any action to maximise their retirement income. At the same time, if a consumer decides to exercise the open market option, they can suffer if fund transfer does not happen in a timely manner.

“The way that firms deal with pension policyholders provides an indication of how they treat their customers more generally and we will be looking for firms to demonstrate good practice in this area when we come to assess their overall TCF compliance in light of the December deadline.”

ABI spokesman Jonathan French says standards of customer communications are good in some cases, but not in others.

He says: “To address this, the ABI recently published new guidance for provider wake-up letters which will ensure customers get jargon-free information that clearly explains their options, and the potential benefit of shopping around.

“As the FSA has noted, we are also working with members to deliver significant improvements on transfer times. All of this work will help to ensure that customers make informed choices at retirement and get the service they rightly expect.”

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