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Omo sapiens?

No one disputes that it is a good idea but opinions vary on how and whether the FSA&#39s open market option regulations should be given more teeth after recently released ABI statistics show take-up has actually slid backwards since the rules came into play.

The ABI insists that not too much should be read into the statistics, which show a drop of 7 per cent in people taking out the Omo since the implementation of the rules last September. Take-up moved steadily downward to 31.2 per cent in the second quarter of this year from 38.2 per cent in the third quarter of 2002 when the regulations came into effect.

The ABI says several factors may have affected the statistics, particularly the fact that they do not reflect annuitants who may have shopped around but found that the best deal was with their original provider.

Some in the industry insist there is little more that can be done and it is a case of consumer apathy but others believe the FSA should look again for ways to give the regulations more bite.

Product providers are required to send out a factsheet setting out what consumers should take into account when buying an annuity and how to get the best deal.

ABI spokeswoman Emma Grainge believes the calculations need more refining to give a better picture of how many people are considering their Omo but admits there is still a need to get more people shopping around.

Hargreaves Lansdown head of pensions research Tom McPhail takes a stronger view and, while supporting what the FSA has done so far, believes the regulations do not go far enough and there needs to be a rethink of how Omo is encouraged.

He wants to see more stringent guidelines put in place to force product providers to make the options more obvious to consumers.

He says: “It is clear to me that this is not adequate. The FSA should go as far as requiring providers to print a table showing a range of annuity rates. Too many people are not taking advantage of it and we need to make the message more immediate, clear and more direct. People are not appreciating or understanding that by using Omo they could end up with a better income.”

But Informed choice managing director Nick Bamford thinks the FSA has done enough and reckons that providers are also doing as much as can be expected of them in a competitive market. “Now it is just a matter of repeating the story,” he says.

Scottish Widows head of marketing technical Ian Naismith says a lot of effort went into making the message sent to customers clear and simple and suggests that some people with guaranteed annuity rates may be deterred from changing provider as they do not want to give up their guaranteed annuity rates.

He believes that including annuity tables in correspondence to customers would be logistically difficult to implement on systems, particularly in keeping up to date and it would only be possible to provide “bogstandard” examples.

Naismith says: “The Omo is not an idea that insurers are against. I think that the big players would rather do the best thing for the policyholder rather than hold on to the money. We need to be highlighting it and perhaps what we are producing at the moment is not doing the trick and we need to think about whether we can give a slightly stronger message.”

Richard Jacobs Pension & Trustee Services director Richard Jacobs says his biggest business line last year was annuity rates and is surprised by the statistics, suggesting that they should be nearer 70 per cent.

However, he says annuity rates are getting continually worse and the difference between providers is not great.

He also believes that administration from most providers is “appalling” and likes to see a decent gain before changing a client&#39s provider as he knows that fund rates and annuity rates can change during the time it takes to process the move. That said, Jacobs says he has had cases where he has been instructed to exercise the Omo for a benefit of a £1 a month. “The people who are buying annuities do not have a lot of money. They want every penny they can get. A lot feel dreadfully let down by insurers, so loyalty is not an issue.”

He says a lot of IFAs with current PI issues are “frightened to death” of working in the pension market and suggests that now the regulator has put the onus on providers to spell out the Omo there is less need for the IFA to take any action as they get commission whether the client changes or not.

Clerical Medical pensions strategy manager Nigel Stammers describes the ABI statistics as “baffling” and suspects that what the industry is fighting may be consumer apathy. He believes there is a danger that there may be a temptation to “finetune” the Omo, resulting in more paperwork which he says will be self-defeating.

He says: “It is difficult to see what more we could do more than we have already done. It is a case of leading consumers to water. If there is anything more to be done, it should be in the way of generic advertising to consumers through the FSA website and leaflets.”

The FSA is carrying out its own research on Omo take-up and the industry will have to await its findings to be completed later this year to see whether it believes the regulations need further tinkering.

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