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Omo move could hit annuity rates

FSA plans to force life offices to highlight the open market option on annuities may see normal annuity rates fall, according to Institute of Actuaries president Peter Clark.

The forecast follows FSA plans to compel insurance companies to clearly promote policyholders&#39 rights to shop around for the best annuity rate ahead of making their buying decision. It also follows the ABI&#39s recently issued statement of best practice on the same subject.

The move is expected to increase awareness of impaired life annuities and to see more policyholders opt for enhanced rates, meaning healthier annuitants lose out on mortality cross-subsidy.

But while some life offices agree, other experts think the likely impact of highlighting the Omo to pensioners will put pressure on the market, making normal annuity rates more competitive.

Clark says: “Clearly, if you are taking annuity statistics overall and if more and more people who have impaired life expectancy get special rates, then the result for people left who are healthy and expect to live longer will be slightly worse rates.”

Britannic Retirement Solutions corporate development director Bob Bullivant says: “The Omo is one area where an IFA can show immediate benefit to their clients and by making the option more and more visible, more and more people will take it. This will take poor lives out of the normal market.”

William Burrows Annuities director Billy Burrows says: “There are two forces at work. If more people move to imp-aired rates, insurance companies lose their mortality profit but this might encourage companies to be more competitive.”

Britannic Retirement Solutions says it is extending its special annuity underwriting system to include a broader range of conditions. This means a wider range of less serious conditions will qualify policyholders for better rates than previously.

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