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ABI to introduce compulsory code of conduct for OMO

Craig.jpg

The Association of British Insurers will introduce a compulsory code of conduct which will force providers to remove the annuity application form in the communications they send to customers.

The initiative has been announced as part of ongoing efforts by the industry and Government to increase the number of people who shop around at retirement.

The move will stop consumers from automatically rolling over their savings to an annuity with their current provider. The trade body says the new code will also ensure consumers receive all the information they need to shop around in one place.

ABI director of life and savings Maggie Craig (pictured) says: “The Association of British Insurers believes all consumers should shop around to maximise the income from their pension savings. However, not enough people shop around currently. This new industry initiative has been developed to make a significant difference to people’s retirement outcomes.”

Treasury financial secretary Mark Hoban says: “The ABI’s announcement can form an important part of a wider package of measures to encourage consumers to get the best from the annuity market, which the Government is working with the pensions industry, advisers, and consumer groups to deliver in the coming months.”

Hargreaves Lansdown head of pensions research and Pension Income Choice Association chairman Tom McPhail says: “This is a welcome concession from the ABI and an indication we can move towards a more complete solution.

“However, what they have proposed today falls a long way short of what we would regard as an acceptable outcome. We will continue to work with the DWP, the Treasury and the ABI to put together a more far reaching solution.”

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Comments

There are 6 comments at the moment, we would love to hear your opinion too.

  1. David Trenner - Intelligent Pensions 26th September 2011 at 1:06 pm

    As Tom says, this is a start, but the ABI has to get its members to say “If you shop around you will get 20% more pension – or even more if you smoke or are in poor health” and not “You might get more if you can be bothered to shop around.”

    But the ABI doing that would be a bit like turkeys voting for christmas, so Hoban has to force them to do it.

  2. The good, the bad and a suggestion…

    The Good: This will ensure that many more people will be exposed to the opportunity to seek a better deal.

    The Bad: How many firms will be available post-RDR to provide that service to those clients? If you increase the volume by the ‘missing 60%’ who currently use their own pension provider, how many firms could cope? Particularly with clients who have smaller fund sizes?

    The Suggestion: To help clients and advisers, we need an Origo Options style system that provides consistent, easy access to scheme information (pre-retirement) on which to base advice. This currently is really hard work and incurs lots of cost and time delays for everyone.

  3. This is a small step in the right direction.

    Fuller proposals from the DWP working party/Mr Hoban need to include properly signposting choices in the wake up process beyond lifetime annuities.

    For healthy lives and many lifestyle/light enhanced lives a lifetime annuity might not be the best solution.

  4. This is a good idea in principle, but the problem is that if the providers do not saend the application form and after research find out they are the best provider for the client, there will be further delays in the application form being sent out. With some providers they have a ten day turn around and with the markets being as volitile as they are this 10 day delay could cost the client benefits.

  5. The most likely effect of merely omitting the application form will be to provoke the question Where’s the application form? Most recipients of pre-retirement packs are simple people with little or no knowledge of the at retirement process.

    Unless the maturing policy in question includes GAR’s, providers should be barred from providing any sample annuity figures. Instead, the only information provided should be the anticipated maturity value with a separate brightly coloured laminated sheet explaining without ambiguity that the recipient’s next step should be to seek WoM IFAdvice on how best to apply his fund in the open market. Anything less is just piddling about. Why doesn’t the FSA act to address this? Too busy fiddling about trying to produce a framework for simplified advice and picking apart platform charging structures which, I suggest, are considerably lesser priorities.

  6. Julian, a large proportion of the simple people will have fairly small pots of cash. You’re unlikely to encounter a sophisticated investor whose knowledge stops completely at retirement age.

    If all the providers do is tell the customers “to seek WoM IFAdvice on how best to apply his fund in the open market” then all they are doing is passing on a problem to IFAs. IFAs will be unable to make a profit on a large proportion (the majority?) of the business out there, as it will be significantly less than £30k. What does the IFA do with those clients?

    In addition, a number of customers will not have sufficient funds – for those with less than, say, £5k to £10k – who will they get their triviality info from? And how much of an income shortfall will this create for the lower income group that, presumably, the Government will have to backfill? The group who stand to benefit by “thousands of pounds” are not the majority of the market.

    The “unintended consequences” risk here should make everyone impacted stop, think, and get together to identify a working solution. Having one vested interest (ABI / Providers) driving the solution for everyone has risks.

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