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Insurers get it in neck over Omo materials

The FSA pulled no punches this week with its stark warning to life companies that open market option standards for annuities had to dramatically improve after discovering shocking numbers of consumer correspondence failings.

The FSA’s Omo report showed that of a survey of 55 firms, 38 per cent of all customer Omo material did not give sufficiently clear information in order to clients to make informed decisions about retirement options.

The main point was that many providers failed to highlight the value of seeking advice, and the regulator discovered around a 20 per cent gap between the top and bottom annuity rates, meaning significant numbers could achieve higher incomes could be achieved through using the Omo.

The ABI says it is hoping to make improvements later this year to ensure its members are meeting regulatory requirements.

But Hargreaves Lansdown head of pensions research Tom McPhail says the ABI needs to up its game, accusing it of becoming “little more than an apologist for insurer’ cynical practices.”

Aegon has joined the ranks of our US peers, with this week’s much-anticipated launch of its variable annuity product, Income for Life.

The latest entrant to the third-way product market invites those with between £50,000 and £1m pension savings to retain investment control while still taking a guaranteed income.

The guarantee will cost between 0.5 and 1.6 per cent, depending on the risk profile, with nine funds across a range of profiles with varying degrees of equity exposure.

The guarantee income level will depend on whether a single or joint life plan is chosen. Those choosing a single life plan, starting to take income at age 60 will receive a guaranteed income level of 5 per cent for life.

And an interesting group pension story saw one of the biggest buy-ins between life companies took place this week, with Friends Provident insuring about £350m of its £1bn pension liabilities with Norwich Union while continuing to pay its pensioners directly.

The move, the first of its kind of a FTSE 100 company’s retirement scheme, has been dubbed “a real coup” for NU, by actuarial firm Lane Clark & Peacock.

LCP partner Charlie Finch says: “This deal is a real coup for Norwich Union, following hot on the heels of Paternoster’s deal with fellow FTSE 100 Lonmin. At £350m it is the fourth largest buyout transaction to date and is their first major deal, almost quadrupling Norwich Union’s buyout business overnight.

“Half of the 14 buyout transactions over £100m since January 2007 have been continuing schemes de-risking their investments through a pensioner “buy-in” such as this and we see “buy-in” strategies increasingly becoming the norm as a way for schemes to reduce risk.

Finch says the fact that Friends has done the deal with a rival insurance company highlights the very specialist nature of pension buyouts.


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