View more on these topics

Give annuities a lifeline by easing the rules

Annuities – there, that&#39s caught your attention. Nothing like a mention of annuities to get the pulse racing. The Government certainly wishes this were the case. An official mentioned to me the desire of ministers to get people interested in this subject. I started humming the theme tune from Mission Impossible.

But the intrinsic dullness of the subject should not blind us to its importance. Too many of those in retirement are depriving themselves of much needed income by accepting the annuity rate offered to them by their pension provider and not shopping around for the best option in the open market.

It is only recently that regulators have quite rightly obliged providers to draw consumers&#39 attention to the open market option (perverse really when you contrast this with the level of disclosure expected for years back in other areas).

The figures are quite startling, according to recent research on the subject. On an (average) pension pot of less than £25,000, a pensioner can be between £4 and £8 a week better off in retirement simply by selecting the right annuity so Government interest is at least explicable.

How will those annuitants find the best rate? Through independent financial advice, of course. There will be some who can master a decision tree and work it all out for themselves (just as they do with stakeholder?) but many will need advice and IFAs should be the obvious place to find it.

But this will not happen by itself. The Government should look at the imaginative ideas of the retirement working group before poor annuity rates put off the next generation of savers from investing in pensions at all.

The lifetime capital guarantee needs to be explored. Employers who run money-purchase or defined-contribution schemes need to be more active in signposting their employees towards both the open market option and advisers who can help them access it.

Regulators have to ease up on their requirements so that those who need advice on annuity purchase can get it simply, cheaply and quickly without being thrown into a full retirement planning exercise when their funds do not justify this depth of planning.

Advisers have to see this as a potential opportunity, especially if focused advice on annuities can be given by those who are being trained as advisers rather than just by fully qualified IFAs.

Remuneration should be taken care of because the provider will anyway be charging a 1 to 1.25 per cent commission on the pension whether or not advice is taken.

All should be working toward a situation where it is the norm for individuals at retirement to get advice on and encouragement to buy the best annuity rate.

There is even, of course, a polarisation angle. Just as all roads used to lead to Rome, so all my columns seem to lead to CP121. If independent advice is needed to access the best annuity rate, it had better be accessible to the pensioner.

I can think of little more off-putting for a pensioner of modest means at retirement to be told on entering the IFA&#39s office that there is something called a defined-payment system to be explained and that there will be a fee payable if the pensioner does not take the advice about the annuity.

You can hear the pensioner, in the best traditions of the News of the World, making his or her excuses and leaving.

An inflexible DPS could work against something which is a cornerstone of Government policy. Surely this in itself is enough for the FSA to rethink how the DPS will work.

IFAs may not be able to make annuities interesting but they can make them accessible and better value.

Recommended

Bank denounces depolarisation as providers go on the attack

The FSA proposals for depolarisation are coming under attack from some of the biggest providers once tipped to benefit most from the new regime.In its response to CP121, Lloyds TSB criticises the proposals, saying they will lead to consolidation into a few stronger brands, decreased competition and customer detriment.It says: “We see the distinction between […]

EFM appoints chief investment officer

Edinburgh Fund Managers has appointed Anne Richards as chief investment officer. She will join in the summer from Merrill Lynch Investment Managers, where she was managing director of its Alpha UK equity management team. Before Merrill, Richards worked at Alliance Capital and J P Morgan, gaining 10 years experience in fund management.

Law firm warns that gap-filling could breach insurance rules

Life offices with tied salesforces could be breaching insurance company regulations by selling other insurers&#39 products in a depolarised world, warns City law firm Norton Rose.According to rules in the Interim Prudential Sourcebook, which replaced the Insurance Companies Act, life offices are only allowed to “conduct business relating to their or of an auxiliary nature […]

Equitable must review cut decision says consultancy

The Equitable Life Board must review its decision to slash the value of pension policies which are approaching maturity as policyholders will need retirement income sooner rather than later says consulting actuary Punter Southall & CO.It is unfair to penalise older policyholders who will need income from their policies soon says Punter Southall principal Caroline […]

Newsletter

News and expert analysis straight to your inbox

Sign up

Comments

    Leave a comment