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Bullivant finally brings annuities to the fore

There is now a new strand to the long-running annuity argument.

With a new model for the advice and distribution of annuities put forward by Britannic Retirement Solutions corporate development director Bob Bullivant at last week&#39s ABI annuity reform seminar, perhaps the motivation everyone has been waiting for to engage in a debate has been provided.

Bullivant proposes a three-tier model which sees full-blown advice provided to wealthy pensioners while those holding more modest sums in their pension funds buy an industrywide standard product.

The standard product would have few frills. In fact, the only decision an annuitant would have to make is if they want a level annuity or RPI product.

Other details include being paid monthly in arrears, widows getting 75 per cent of their partner&#39s income and a 10-year fixed guarantee.

Once “Mr or Mrs Average”, as Bullivant refers to them, has decided they want this product, their pension provider would be obliged to tell them to go out and search the market for the best rate, exercising their right to an open market option.

But many have raised concerns over their interpretation of Bullivant&#39s plans for no advice for lower earners, pointing to Treasury economic secretary Ruth Kelly&#39s statement at the ABI seminar that, on a flexible annuity of £23,000, there is an £8 a week difference between the best and worst rates in the market.

They say that if Bullivant&#39s claims that people in this bracket, which, according to the Government, is the average national annuity size, do not need advice under this scheme, how would they be able to ensure they were getting the most value for money?

But Bullivant insists one of the key reasons why the majority of annuitants do not presently exercise the Omo, and why it is not worth IFAs&#39 time to assist them in doing so, is the bureaucratic nature of the annuity advice process.

He says: “The fact-find at the moment is bureaucratic and expensive. If a customer decides they want the standard annuity, all they need advice on is the best rate, which is easier and more economical for IFAs to provide.”

Part of Bullivant&#39s plan involves people treewalking to reach their initial decision about which of the three tiers they belong to. This should please the Government and FSA as decision trees form a significant part of their consumer education efforts.

But not everyone is sold on the idea of extending the influence of decision trees.

Standard Life senior technical manager John Lawson says: “Bullivant&#39s way of solving the problem is to get people to use trees and choose a standard annuity. We do not believe that is the best route. We think people should have more choice and control over their pensions.”

Most rivals and advisers say that, on the surface, Bullivant&#39s ideas make sense. They agree that one of the greatest difficulties, especially at the low end of the annuity market, is providing advice at a reasonable cost.

William Burrows Annuities director Billy Burrows says: “It is a step in the right direction. The trick is getting to grips with the fact that people need advice but that advice is quite expensive and therefore needs to be simplified.

“Advising on an annuity purchase for someone with a relatively modest sum is quite simple. The complex bit comes when you involve other types of income.”

The prospect of simplifying the process for people looking to turn their modest pension funds into an annuity has also been met with approval.

Prudential senior product manager (retirement market) Trevor Mitchell says: “Segmentation of the market is important and understanding the needs of the different groups in the market.”

“It seems to be a sensible approach. But my concern would be that it appears to be restricting the choice for some groups rather than increasing the choice. I am in favour of greater flexibility. But I would welcome any debate and I think there are distinctive needs across the market.”

Bullivant is not the only one with alternative ideas to move the market forward.

Some say the way forward is to give the less well off more control over their pension fund and not force them down an avenue which may not be app-ropriate for them.

Standard Life says people should be given more choice when they reach retirement and be allowed to take an inc-reased lump sum, greater than the existing 25 per cent, from their pension before they purchase an annuity.

Lawson says: “We would prefer to see the less well off take a lump sum from their pension fund up to perhaps £15,000-20,000 as opposed to having to take small amounts of annuity income.”

Even if the only result of Bullivant&#39s blueprint is to spark a debate among the industry about reforming the annuity market, credit must be given to him. Certainly, it will please the Government as one of its stated objectives in its consultation paper released in February was to provoke such a discussion.

Now the debate appears to have started, hopefully, for the benefit of consumers, the end result is one which offers significant improvement in terms of choice and control.

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