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Opening up the annuity market

The significance of IFAs in extending choice could get some unexpected recognition in Government plans for annuity reform.

The open market option long sought by advisers is an essential market-changing move. But it may need some pump priming. Suggestions put to the Govern-ment by pension consultant Dr Ros Altmann are understood to be receiving a sympathetic hearing in high places. They would see providers bound either to refer their customers to an IFA, making most of the open market option or for the provider itself to provide information on three of the best market rates. A proportion of the cost of advice is already deducted by the provider, according to Dr Altmann – the intention is to see it utilised.

The second significant strand of reform would be to encourage a “money-back guarantee” longer than the 10-year one currently available although this would be paid for by the annuitant.

We can see merit in these proposals although we fear they may not be proofed against reform of polarisation. In addition, any move away from a full fact-find must be thought through very carefully.

We also argue strongly, unlike the annuities paper, that before drawdown is labelled too expensive, a study should be made to see how much IFAs rebate on these contracts. Finally, the 75 problem will not go away, particularly if retirement at 65 is no longer a realistic option.

But there may be more to recommend the Government paper than first meets the eye, if viewed in conjunction with these new proposals. Dr Altmann says the ideal is that people buying an annuity get independent advice. We couldn&#39t agree more.

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