View more on these topics

Open verdict

You often wonder why the public are cynical about financial services companies and then something comes along and you realise why and it is pretty simple really.

Companies can harp on all they like about customer service but in the main, treating customers fairly does not come second nature to them.

It is why the FSA has had to launch the TCF initiative in the first place and it is why it continues to find fault with many firms under its jurisdiction.

Once again, an FSA investigation has found the industry wanting – this time it’s on annuities.

Six years ago, insurers were duty bound to inform retirees (the wake-up letter) that they do not have to buy an annuity from them. We all know the facts.

We are living longer and fewer people are able to rely on gold-plated final-salary schemes, meaning that more and more will have little choice but to buy an annuity. It is a crucial decision and once made cannot be reversed.

Yet many insurers do not offer enhanced annuities, which could make a huge difference.

A 75-year-old woman who has smoked more than 10 cigarettes a day for more than a decade could be around £1,300 a year better off.

Married people all too often opt for a single-life annuity – often the illustrated example – when buying a joint-life annuity may be the better course of action while most fail to consider the effects of inflation.

The open market option has struggled to make an impact and still the majority of the public are unaware of it. This is despite FSA guidelines that suggest they should.

But if you take the ABI’s word for it, it is all hunky dory on the annuity front. The association reckons its members are “working hard” to improve customer experience of annuities.

It adds that “now we are doing more to improve the service that consumers receive”. You have to ask why now and not six years ago when Omo became an issue for them.

In fact, it would appear that insurers are not working nearly half enough. The outcome of the FSA’s investigation is extremely worrying. I am sure a few eyebrows were raised at the regulator’s HQ when staff read the ABI’s press release – published just days before it officially revealed its shocking findings – that insurers are not providing sufficient information to allow people to make informed decisions.

The explanation for the insurers’ disregard for looking after people’s interests can only be that there is something in for them. In other words, profit. Insurers have a vested interest in keeping quiet about the Omo because they do not want to lose business.

They may have to tell customers that they can shop elsewhere but they do not have to (and do not) offer comparisons to illustrate how good or poor their rates are against other insurers.

The ABI ad hoc response to the FSA’s investigation in this paper perhaps reveals the greater truth – that the insurers realise they are not doing anywhere near enough. It admits that more needs to be done to improve the customer experience and “expects to be in a position to announce improvements later this year, including new templates to ensure our members are meeting the FSA’s requirements”.

Again, why the delay? Thousands of people will retire this year and unless they are wise to contrary, they will miss out on the opportunity to boost their income in retirement. With the economy in meltdown and inflation hitting our pockets hard, every penny will count for many pensioners.

There have been many vocal critics of the current system, not least Hargreaves Lansdown and Ian Owen, a fellow of the Institute of Actuaries.

They are among those that believe that Omo should be the default option and that providers should be compelled to give prominence to it. I have to agree with Owen on whether the open market option, as a phrase, means anything to the man on the street and whether it should be given a more consumer-friendly name.

I also have to agree with them that Omo has to be the default choice. It is the only option as it is a sad indictment of the industry that insurers cannot be trusted to treat would-be retirees more fairly despite having ample chances to do so.

Paul Farrow is personal finance editor at the Telegraph Media GroupMoney Marketing


Pension - thumbnail

David Cameron appoints former adviser to Tony Blair as new pensions minister

Following a cabinet reshuffle in light of last week’s general election, David Cameron has announced that Ros Altmann will be replacing Steve Webb as pensions minister. As the industry works with one of the largest reforms to the sector in almost a century, the former adviser to Tony Blair has been tasked with ensuring that the pensions revolution does not stray off track.


News and expert analysis straight to your inbox

Sign up


    Leave a comment


    Why register with Money Marketing ?

    Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm