The Government is planning to overhaul the open market option process, potentially through new regulation, and has issued a stern warning to the pension industry to clean up its act.
This week’s Money Marketing reveals that Treasury financial secretary Mark Hoban has given the industry until the end of this week to explain why so few people are accessing the Omo.
In an email to members, the ABI says the Government made its “serious appetite for wholesale reform” extremely clear in a recent meeting. It adds: “We cannot emphasise enough how serious this pressure is.”
Hoban has also requested views on whether the Omo should be made compulsory and whether a “pensions passport” – proposed by the Pension Income Choice Association – would make shopping around easier.
The ABI says its work on Omo take-up will only be “persuasive” if providers can commit to implementation dates
It warns “a best practice solution will no longer convince officials or politicians” as they can still point to examples of bad practice but it says more regulation will add complexity and costs for consumers.
A spokeswoman says: “The industry is already making changes to improve the Omo. Regulation adds extra complexity and costs which in the end will be borne by consumers.”
Pica chairman and Hargreaves Lansdown head of pensions research Tom McPhail says: “Significant reform of the Omo would be fantastic news for millions of pension investors who will find it easier to get a better income from their retirement savings.”
The number of people buying annuities from external providers has been hovering at the 35 per cent mark for years although the first half of this year saw it increase to 40 per cent.
A Treasury spokesman says: “The Government welcomes improvements that industry have made to the Open Market Option for consumers. We are currently consulting on ending the requirement to annuitise at age 75 and the consequent changes to the annuities market; changes to the Open Market will be considered alongside other policy responses as part of this.”