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Life companies fail on open market option

The FSA has warned life companies that Open Market Option standards for annuities must dramatically improve after uncovering shocking evidence that nearly 40 per cent of their consumer correspondence fails to meet regulatory requirements.

A leaked copy of the FSA’s Omo report, seen by Money Marketing, shows 38 per cent of all customer Omo material, from 55 surveyed firm, fails to give sufficiently clear information to enable a customer to make an informed decision about retirement options.

A significant failure uncovered was that many providers do not make clear the value of seeking advice.

In the report, FSA TCF director and insurance sector leader Sarah Wilson says she is “disappointed” with the findings which are based on an FSA review of “wake-up material” sent around six months before retirement and reminder packs sent six weeks before retirement.

The FSA research found a gap of around 20 per cent between the top and bottom annuity rates, indicating the significant potential for customers to achieve higher incomes by exercising their Omo.

The regulator found no obvious link between good or bad Omo material and the annuity rate offered by the provider.

Wilson said: “This review shows a significant number of firms have improvements to make in this area if they are to meet the December 200 TCF deadline.”

Hargreaves Lansdown head of pensions research Tom McPhail says: “It sounds as if the FSA has seen through the ABI’s smokescreen. The ABI is becoming little more than an apologist for insurers’ cynical practices. The only acceptable solution is to have 100 per cent of investors exercising the Omo, and settlement of transfers completed within 5 days. If insurers really wanted to make this happen, then they could; they don’t because they are making too much money out of the status quo.”

ABI spokesman Jon French says: “ABI research shows the annuity market does provide good value for money for most customers. But the ABI is not complacent and we acknowledge freely that much more needs to be done to improve the customer experience. We expect to be in a position to announce improvements later this year including new templates to ensure our members are meeting the FSA’s requirements.”


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