Few people can be as bored of the way that we communicate the open market option, the right to shop around for the best annuity rate in retirement, as I am. That is not to say that the Omo is not critically important it is. However, we should accept that the argument for the Omo has been won and focus instead on whether we, as an industry, are doing enough to motivate pensioners to transform behaviours.
Seven years ago, the arguments for the Omo were new and controversial. The need to gain buy-in from senior politicians, consumer groups and the FSA was real and immediate. Now, few can claim that the argument has not been won. Recently, the Treasury has threatened the industry with legislation if it does not improve Omo take-up while the pension minister and The Pensions Regulator have reminded pensions’ trustees to ensure that scheme members enjoy the benefits of shopping around.
This is a compelling demonstration that this issue is understood by all senior policymakers and that they intend that the situation changes. The battle must now be with changing the way that people at retirement behave. Despite many years of significant media attention, Omo take-up is still pitifully low, with only one in three shopping around.
Consider the fact that only 12 per cent of pensioners currently take an enhanced annuity for health or lifestyle reasons, yet more than 40 per cent could do so and may be able to enjoy up to 30 per cent extra retirement income for life.
The industry has a key role in transforming consumer behaviours. First, we have to recognise that the words financial services have the ability to scare and bore consumers at the same time. Yet when we communicate the Omo, we tend to focus on gloomy scenarios and the perils of not shopping around. Does this not reinforce consumer concerns when perhaps we should start to motivate them by the many benefits that pensioners can enjoy by enjoying greater income in retirement?
We must also remove barriers to take-up in the whole annuity sales process by putting the consumer first and remove unnecessary complexity and boredom. Words such as open market option and annuities which are technical and hard to understand can only reinforce concern about engagement with the industry on these issues. This requires industry innovation and seeking to drag annuity purchasing into the 21st Century.
Partnership’s online enhanced annuity platform means that an adviser and consumer need only answer 10-12 simple health or lifestyle questions rather than ploughing through 20 pages asking similar questions. The battle for the arguments has been won, the industry must now transform consumer behaviours.
Andrew Megson is the managing director at Partnership