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Omo sapiens

The revelation that 75 per cent of people are missing out at retirement

because they do not shop around with their money has had little impact on

an industry which makes its profits from client apathy.

But it has prompted calls from some industry experts for action from the

Government, which could face criticism if it does not ensure the best deal

for those retiring from stakeholder pensions.

A survey in the May edition of Which magazine showed that only 25 per cent

ofpeople look around for a better annuity rate than theone quoted by their

pension company at retirement.

This means more than £5bn in maturity money will be ploughed back into

pension companies this year which are not necessarily giving their clients

the best deal, according to The Annuity Bureau.

Its business development director Ronnie Lymburn says the reason could be

that low annuity rates have caused inertia so people think that shopping

around will not make any difference.

But this is not the case.A 65-year-old man with apension pot of

£100,000would get a yearly incomeof £7,104 from Standard Lifeat the moment

but 20 percent less from GE Life, which is still in the top 10 providers,

according to the annuitytable above provided by The Annuity Bureau.

Scottish Equitable pensions development manager Steven Cameron says it is

not just the pensioners of today who stand to miss out.

He says the retirement choices on stakeholder pensions also include an

open-market option and people could miss out on better annuity rates if

they are not made fully aware of this.

Cameron says: “Very little attention has been paid to rules about how

competitive annuity rates are at retirement and it would be very difficult

for the Government to define a good value annuity.”

Lymburn agrees, saying the availability of an open-market option will be

especially important for stakeholder pensions where the retirement funds

are likely to be small.

Lymburn says: “Somebody somewhere has got to be making this a prominent

featureof stakeholder.”

In the meantime, Wentworth Rose IFA Philip Rose suggests making an

immediate change in the correspondence which is sent to retiring

policyholders and says this could be adapted to stakeholder.

Rose says: “Very few com- panies make it clear that you have an Omo and

you have the right to get the best return. It should say something like –

Your policy has an open-market option. This gives you the right to shop

around and you may significantly increase your pension.”

Cameron agrees something should be done but warns of the process going too

far. He says: “It is almost like saying to a manufacturer that anyone

thinking of buying its product can get it cheaper somewhere else.”

Rose says his clients regularly get 20 per cent more income by using the

Omo. He quotes an example of a client who had a stroke two years ago and

recently took his pension. He says: “We increased his pension by 66 per

cent. This is one occasion where being ill works for you.”

The FSA agrees that the ability to shop around for annuity rates at

retirement is not prominent enough.

Spokeswoman Sarah Modlock says: “People do not become aware of an Omountil

quite late in the process. I am sure there is room for improvement.”

Rose thinks it would be good if the industry took the initiative. He says:

“It would be nice if the Association of British Insurers did it.”

Cameron believes it could be included by the ABI as a best-practice procedure but says: “I think it would be more to do with the FSA under their consumer education remit.”

Rose thinks this is a sad position for the industry to be in. “It is a bit

disappointing if the only way we can do the decent thing is to be forced

into it.” But he concedes: “In the end, it is so important that people do

not get an inferior pension that if it takes legislation, let it be that


Lymburn agrees and says he would like to see the FSA take the lead. He

questions the ability of the ABI to do the job.

ABI spokesman Vic Rance says: “It is not something that we have looked at

and we think it could be more appropriately dealt with elsewhere.”

But the FSA says the initiative could lie with the Department of Social

Security, which requires pension companies to send a detailed statement to

customers around four months bef- ore retirement. It currently includes

estimates of the annuity that a client can expect but does not point out

there is an Omo.

Modlock says: “We believe it would behelpful for investors if it could be

highlighted at this point that there is an Omo.”

A DSS spokesman says there is an issuein general and confirms it is

looking at the rules in general to see if change is requiredbut it has not

specifically looked at annuities and stakeholder.

Scottish Mutual pensions development director Leslie Gray suggests any

disclosure could be included in the Government&#39s Universal Pensions

Statement, which is nearing the end of its development. The idea is to

send people a consolidated statement of ll their pension benefits, state

and private,on an annual basis. He says: “It would be better to send the

message on a yearly basis rather than just once at retirement when it could

be easily overlooked.”

Whatever the outcome of the debate, it is clear pensioners are missing out

at present and they will expect something more from what is seen as a

Government-backed pension scheme.

Stakeholder cannot afford to be launched without careful thought on

retirement options and the competitiveness of any attached annuity rates.

As Lymburn says: “With the recent news about experiments with cloned

calves which could eventually help humans live longer, guaranteeing the

best income for life will become even more vital. After all, no one would

want to make it to the age of 150 just to live in poverty.”


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