The Pensions Income Choice Association says the process for annuity purchase must be reviewed and wants a register of IFAs willing to deal with pension pots under £50,000.
Pica, which was set up in July, says the default option for people approaching retirement should be to review all the alternatives available rather than being automatically switched into a poor-value annuity.
In a report called Optimising Value in Retirement, launched last week at the House of Lords, Pica calls for a new three-stage communication process that pension providers should follow:
Step one: To focus on the choices and decisions that people face at retirement and the action they need to take.
Step two: To produce a personalised statement containing sufficient information for people to use to obtain quotations.
Step three: A short communication requiring an employee to inform the company/trustees how the fund should be applied.
It wants new initiatives to help IFAs deal with smaller pension pots. In 2008, 88 per cent of annuities were bought with funds of under £50,000.
ica wants employers to have a more active role in advising staff on how to buy an annuity and more direct-to-consumer price comparison facilities, including expansion of the FSA’s tables to include all providers and all retirement income solutions.
Pica chairman and Hargreaves Lansdown head of pensions research Tom McPhail says: “In 2008, just over a third of those taking an annuity purchased on the open market. We believe our recommendations would give hundreds of thousands of people over the next 10 years a greater level of income in retirement.”
Association of British Insurers director of life and savings Maggie Craig says: “The ABI agrees it is important to draw people’s attention to the open market option and the Pica report makes useful suggestions for how to improve value for money and service by retirees. The challenge is to focus efforts on ensuring those who can benefit from the Omo do so without inconveniencing those who are unlikely to benefit.”