Last week, Money Marketing reported the Government was planning to crack down on perceived failings of the annuity open market option.
Yet far from failing, I doubt whether there is a market for any UK financial product where such a high proportion of consumers make such informed choices.
Recent ABI research revealed 67 per cent of people buying an annuity shopped around before buying. And before the shouts of “they would say that, wouldn’t they?” ring out, this result is identical to a 2008 FSA survey.
That leaves 33 per cent who did not shop around. Why not? One blindingly obvious reason is that over 20 per cent of customers purchased their annuity with less than £5,000. The minimum purchase price for any open market annuity is £5,000, leaving these customers with no choice but to take an annuity from their existing pension provider.
So we can conclude that out of every 100 people, 67 of the 80 that could shop around did so, with only 13 failing to shop around.
But the figure that some commentators focus on is the 32 per cent that actually buy their annuity from another provider. This is their “evidence” that the market is not working.
It seems logical to me that many people who shop around are happy to stay with the incumbent provider. I shop around every year for my car and home insurance, yet often stay put for one of three reasons – I am already with the cheapest insurer; even if I can get a lower price, the saving is not enough to make it worth the hassle of moving; and, although I can get a cheaper quote from an unknown insurer I prefer to buy from a big brand I trust.
The ABI research backs this up, confirming that around half of the people who shop around but buy from their current provider do so because they offer the best price.
In most cases, they are not making ill-informed decisions. The research found that 55 of the 67 who shopped around took advice or received information from a professional financial adviser.
How can such a successful market be painted as an abject failure?
There seems to be constant calls for the Omo to be made the default. Although the advice rate is already high, at 55 per cent of all those making an annuity buying decision, I think it unlikely this will increase markedly. Over a third of customers have £10,000 or less to buy their annuity. Good quality advisers know they cannot offer a proper advice service for £150 or less.
Tens of thousands of people with small pots, who advisers cannot commercially afford to serve, and who are currently guided through the process by the provider they have saved with, will have to work it out for themselves.
No doubt, new annuity choice services will spring up that do not offer regulated advice, but tell people to buy an annuity from their current provider. Will they provide a better customer experience than the existing provider? I very much doubt it.
A proper debate is needed before we go further down this track to ensure we achieve the best outcome for customers.
John Lawson is head of pensions policy at Standard Life