The ABI is a lobby group for the big insurers and they know that over the years, consumer inertia has delivered massive profits to their members at the expense of investors who have been stuck with uncompetitive annuities for the rest of their lives.
Only last week, the ABI published a “research” paper which suggested that investors were being well served by the annuity market.
Fortunately, the FSA is on the case and just a couple of days later it published a report which flatly contradicted the ABI and showed that hundreds of thousands of investors are still being short-changed at retirement.
The ABI trots out platitudes about how “it takes a long time to turn around the super-tanker”. This is a smokescreen. They could have addressed this problem years ago and still have not to this day for the simple reason that they do not want to.
There is a parallel here. One of the unexpected stars of the last Iraq war was Comical Ali, the Iraqi information minister, who famously declared during the US-led invasion in 2003 that “there are no Americans in Baghdad”, even as the tanks rolled past behind him.
It is all very well for a lobby group to represent the commercial interests f its most influential members but there comes a point where a blatant refusal to confront reality translates into a serious loss of credibility. The ABI is now in real danger of becoming the Comical Ali of the finance industry.
Some of the ABI’s members are just as bad. I have seen one product provider repeatedly arguing that it is sufficient simply for all insurers’ rates to be published, as if this will somehow magically precipitate an upsurge in consumer demand for the Omo.
Anecdotal evidence suggests that this same provider currently rolls over 90 per cent of its existing annuity book into its own internal annuities, which are never the best rates on the market.
This is in spite of the fact that information on more competitive rates is already available in the market. Such cynical and disingenuous practices corrode public confidence in the industry’s ability to make their lives better.
Hargreaves Lansdown has consistently argued that the open market option should be the default. This is not hard to achieve, it simply requires that the volume of paperwork is drastically reduced and that the emphasis is placed on asking investors what they would like to do with their pension fund.
There is now a wealth of information available to investors, from the Pensions Advisory Service, from the FSA and from independent annuity intermediaries such as Hargreaves Lansdown.
Make the Omo the default option, get insurers to settle transfers within five days of the completed paperwork being submitted – unit trust providers can do it, so why not insurance companies? Adopt universal, simple forms to help investors deal with the transaction as painlessly as possible.
The numbers of people hitting retirement will rise rapidly over the next few years – a projected 800,000 in 2012 alone – and as the money-purchase system matures, the sums involved will increase rapidly too.
All these investors need an efficient Omo system. Many of the ABI’s own members – the ones who do not have a big book of existing pensions to protect – would like to see an efficient Omo market, so would IFAs, who should be able to add value to their clients, it is even in the interests of the Department for Work and Pensions, which will have to pick up the welfare bill for pension fund shortfalls.
The ABI is looking increasingly like part of the problem rather than the solution.
Tom McPhail is head of pension research at Hargreaves Lansdown