Hargreaves Lansdown is urging the Government to make the open market option the default option for annuity sales to stop customers ending up in second rate products.
In its response to the Government’s Omo review, introduced alongside the national pension savings scheme reforms, Hargreaves Lansdown calls for zero tolerance on transfer delays with a system of FSA fines for product providers, including those closed to new business.
It says too many customers are ending up in poor annuities with their existing provider through inertia as buying an annuity from the existing insurer is often seen as easier than taking the Omo option.
It says investors should be steered to the Omo as their default option, with their existing insurer having to compete for the annuity business on the open market.
As customers already pay for advice through annuity rates, even if they stick with their existing provider, Hargreaves says the Omo is no more expensive. The response also calls for a system of FSA fines for providers which are slow to release funds.
Hargreaves Lansdown is also calling for a universal application form, a universal discharge form and kite-marking to identify quality Omo intermediaries.
Head of pensions research Tom McPhail says: “We cannot allow pension companies to profiteer from pensions inertia which enables them to sell second-class products to consumers.”
Origen head of annuities Nick Flynn says: “The difficulty is how to treat small pensions pots which providers won’t exactly be queuing up to service. Fines paid to consumers are a very good idea as the ABI guidelines are too woolly. Providers should be able to discharge funds within seven working days but I can count on one hand those firms that actually do that.”