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Government and Regulator reveal OMO communication concerns

Government and the Pensions Regulator have thrown their weight behind reform of the open market option amid concern schemes and providers are failing to effectively communicate basic information on shopping around to members.

In a statement issued today, the regulator says trustees and providers “could do more to issue clear calls to action while encouraging members to shop around for the best annuity deal”.

It claims that, despite disclosure requirements mandating basic information is provided on investment options six months before retirement, standards remain “mixed”.

Pensions minister Steve Webb (pictured) says: “The choices we make at retirement age are amongst the most important of our lives. You don’t have to buy an annuity from your pension scheme provider. Shopping around can provide better value for money and significantly boost retirement incomes.

“I want to see trustees and providers really encourage members to make good choices.”

The regulator says exercising the omo could add “upwards of 17 per cent” to a member’s retirement income, while accessing an enhanced annuity could increase income by more than a third.

The Pensions Regulator acting chief executive Bill Galvin says: “Members could miss out on higher retirement income because they are not well supported in making good choices. Our research shows that standards of information are mixed. Retirement literature should grab members’ attention, and motivate them to take action, rather than putting people off with jargon and legalese.

“While the legislative requirements provide an important safeguard, we want to see trustees and providers delivering simple, readable information that helps members to maximise their retirement income.”

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Comments

There are 8 comments at the moment, we would love to hear your opinion too.

  1. The FSA’s Money Made Clear booklet on options at retirement is commendably clear and straightforward. But, according to the FSA (which I telephoned to ask) providers are not obliged to include one when issuing clients with the rest of their pre-retirement information. Why ever not? The solution is simple, but the FSA has failed to insist on its implementation as a matter of standard practice.

  2. I have said this for years, ban the ceding provider from providing any annuity illustration. Provide the client with the unbaised website. The IFA will have to obtain an illustration from the ceding company as part of their research, if its the best they retain the business if not they lose the business, Simple

  3. Answer is easy. FSA should ban any provider from setting up the annuity unless the client completes the name of his or her adviser on the form and confirms that they have looked at the OMO. Currently I think the problem is that a lot of people have only got small pension pots and to try to engage an IFA will be too costly in terms of fees. IFA’s righthy are unwilling to do this for people if it is not going to be profitable therefore we have a catch 22 situation. Until we can earn reasonable incomes on annuity sales the problem is not going to go away. In theory RDR should kill off this problem as we will agree an adviser charge with the client and the providers will have no option but to charge it from the annuity pot. For once I see this as a great opportunity. It might sound mercenary to some but I am a businessman and am here to make money by providing a service.

  4. After RDR there will be fewer IFA’s available to provide annuity advise in an expanding market with increased choice of products available.

    So what is the point of the Regulators in wanting improved documentation.

    It is also time all pension provders agreed on a standard set of forms for annuity transfers, it would also make the process much more user friendly.

  5. Ironically too much information is provided in the consumers’ ‘interest’. Without exception the people I see are simply overwhelmed by the volume of KeyFacts documentation and associated rainforest they receive in the post, often from 3 or more providers. Why not just send them a statement, the MoneyMadeClear book and a covering letter telling them that it is in their interest to contact an IFA / specialist annuity broker? – I guess we all know the answer ;-^) But, seriously, if the default option is so bad (which it is) why on earth is it the default option? As Julian correctly states, the solution is remarkably simple but I guess there are too many ‘interested’ parties for it to actually happen.

  6. When ceeding schemes (key example recent example Friends Provident) administration staff refuse to issue more than 2 illustrations showing the options available to the client without a charge for each illustration, and they provide clients with a confusing amount of paper they obviously do not welcome the competition brought to the market by OMO.

    The easiest way to get the client to stay is to make it look complicated, bombard them with a huge amount of paper and then they will just tick the ‘stay where I am’ box regardless of the fact that they will be worse off.

    Why would providers want to stop this ‘easy money’ option without proper force.

  7. Odd perception some people – George and Marty specifically – have of “providing value.”

    If you want all annuities to be advised, that will mean paying commission on all annuities. Commission has to be paid for, therefore presumably costs associated with the product will go up… therefore everyone’s annuity value will go down.

    In addition, the average annuity is very small. So do tell which specific advisers are prepared to take on floods of customers wanting signatures for their £8k pension pot to be annuitised? I’ve previously seen £30k bandied about as the figure at which annuitising becomes worthwhile for an IFA. Let alone the additional delay and backlog this would create for the customer.

    So we have a position that would be bad for the customer, bad for the adviser. Genius.

  8. David Trenner - Intelligent Pensions 4th November 2010 at 11:17 am

    Lee, Most annuity rates factor in commission which is either paid to the person who sold the plan upteen years ago or retained by the insurer.

    We are starting to see people like ACH offering a service for small annuities – and lest we forget anything under £18k is ‘trivial’ so no annuity is required.

    The ABI has consistently allowed its members to rip off existing policyholders and the FSA seems unprepared to tell providers with poor annuity rates to stop offering them.

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