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Ian McKenna: Under the bonnet of Pica’s annuity directory

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The new “Pick a” annuity directory created by the Pensions Income Choice Association and the Annuity Exchange attracted significant attention even before it was launched last week.

Having spent some time studying the site it is easy to understand how opinions have become inflamed.

Given Pica has agreed to make urgent changes to the wording it is reasonable to allow them some time to address this, that said these changes should be made before the promised consumer PR campaign. But how does the site measure up in a wider context? Simple text changes should be possible very quickly but are there wider concerns for the adviser community?

The actual site design is fresh and, in my view, well presented. It also works equally well on mobile devices such as tablets and it is even easy to use and understand on a smartphone.

In terms of its primary functionality the service is similarly elegant. By entering three items of information, age, postcode and the total value of their funds to be annuitised the service quickly generates a comparison of lowest and highest annual income that could be achieved, as well as an illustrative figure for if the potential annuitant is in ill health, the latter comparison being based on someone with type II diabetes.

The service then asks users to indicate how they want to be helped; are they looking for advice on all their personal finances, just on their on their pension pot or simply for a comparison of annuity rates? Next users are asked whether they want someone to “sort it all out for me” or if they want to take their own decisions and finally if face to face is desired or telephone/other methods.

It will then generate a list of potential advisers that can be sorted by firm name, distance from the consumer’s home or indicative costs. This does highlight some huge variation in the cost of advice and I am sure participating advisers will find this a fascinating tool for comparing their own charges with peers.

It is concerning that the annuity calculations given are based on a single life annuity with no provision for inflation. My understanding is the number of annuities being created without a partner’s pension and on a level basis are two of the major concerns about the risk of a future misselling scandal in this area.

If a site is being set up to guide consumers, should such a service not start with what is considered to be best practice? I think at the very least these options should be provided in the comparison and there is an argument that the default should have been a case with a 50 per cent partners pension and some indexation, with the option to remove either.

Although this would have needed a rather more detailed front end, it is not rocket science. If you are going this far it would be good to give users some simple graphical comparison.

Equally with so many protestations from politicians of what poor value for money they believe annuities are, I think it would also have been helpful to give the user some indication of their life expectancy and in a graphical illustration demonstrate that the annuity is going to be paid for the rest of their life.

As a further alternative one might then allow users to overlay the simple effect of taking income on a drawdown basis, perhaps with a drawdown calculator showing the effect of them withdrawing any income they like subject to GAD limits on the original sum. There would be a high probability that such a comparison would show the running out of money before they die unless relatively modest amounts are taken in early years.

What appears to be missing here is some external oversight to ensure the resulting service is balanced and objective. Perhaps what Pica should have done as part of this process was set up an external advisory or editorial board that could have impartially reviewed the functionality and content of the service.

Appointing a suitable group of respected independent specialists at this stage might be a valuable step in rehabilitating pick-a.org in the eyes of the industry.

It must be recognised that it is easy to criticize almost any new service when the very first version is launched.  There are some very positive elements about this service and it has the potential to do far more.

The objectives of the service are valuable, even if the execution for version 1.0 is lacking. The imbalance in the language can and should be addressed as a matter of urgency.

Addressing some of the other issues identified above will take longer. A directory of this type to help consumers understand how they can get better advice and guidance when taking one of the most important decisions of their lives should be good for both savers and the industry.

By reacting quickly to criticism, Pica has shown a willingness to listen. Rather than descending into a factional dispute, in the interests of consumers, the adviser community and those consumer advocates who have spoken out should work with Pica, to ensure that the service can be repositioned quickly to give a balanced representation of where and how consumers can gain the help they need.

Ian McKenna is director of the Finance & Technology Research Centre

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There is one comment at the moment, we would love to hear your opinion too.

  1. A great many inaccuracies in this comment! Particularly running out of money through drawdown, perhaps that is based on a high advisor fee model ?

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