View more on these topics

Openwork: Don’t dismiss single-tie deals

Since Openwork announced its single-tie to Partnership for conventional and enhanced annuities, the ensuing debate has suggested that there is only one choice available to consumers: either whole of market annuity choice through the Open Market Option or no choice at all. This misses the point entirely. Pioneering arrangements such as this are a key mechanism to complement wider industry efforts to encourage the take-up of an OMO, not the opposite.

Let’s be perfectly clear. Openwork wholeheartedly supports OMO provision for clients with a suitably-sized pension pot. That is why, in addition to a range of ‘best of breed’ retirement income providers, our group contains a whole-of-market annuity bureau, Openwork Market Solutions, to which any of our advisers can refer clients.

However, we do recognise that for many clients with average pension funds seeking a fixed retirement income, the costs associated with whole of market advice may actually become a barrier to the take-up of enhanced annuities. How can advice be given economically whilst ensuring an appropriate customer outcome?

ABI statistics show the average fixed annuity investment pot was £27,601 in 2011 – just half as much again as the triviality lump sum. Proponents of the OMO concentrate entirely on the desirability of advice to maximise income, conveniently forgetting to establish whether annuitants with this level of accumulated pot will actually wish to pay the fee for the advice in the first place. Offering all customers an OMO is only currently possible because of the inherent percentage commission cross-subsidy; the bigger pots subsidising the smaller ones. Economically, smaller clients will surely baulk at the fee cost an adviser has to levy to cover time, regulatory cost and implementation profitably post-RDR?

But there is a deeper problem with OMO provision. Providers in the enhanced annuity market estimate between fifty and sixty per cent of all annuitants qualify for an enhanced annuity, yet in 2011, fewer than seventeen per cent of annuity cases were non-conventional. The inference here is clear. OMO work might be sourcing from whole of market, but is omitting to regularly check whether rate could be further enhanced through an impaired life product. That’s before even looking against other potential retirement income options.

It is entirely this problem that our revised offering addresses; our advisers will always be able to assume the annuity can be enhanced until proved otherwise. Partnership’s underwriting process drives this result from ten simple questions; a streamlined approach with a single supplier means Openwork’s advisers can economically service this client cohort at a price that does not disproportionately eat into the annuity pot.

Of course it is vital to ensure that single-tied arrangements do not result in customers being selected against through poor annuity rate. We insisted that Partnership peg its Openwork rates to the top five IFA providers. It is frankly nonsense to overplay an analysis of the difference between the top and fifth provider for small annuity pots. Without a streamlined process, the customer would most likely be internally vesting in the ceding company offering, at a rate pegged to, er, nothing.

‘OMO good/single tie’ bad debates miss the real point completely. The focus needs to centre on raising the proportion of annuitants receiving the enhanced annuity the majority may be entitled to, with advice that can be given economically, to a provider that pledges to consistently be there or thereabouts. Openwork advisers can look forward to enjoying such a proposition later this year.

Philip Martin is proposition and marketing director at Openwork

Newsletter

News and expert analysis straight to your inbox

Sign up

Comments

There are 4 comments at the moment, we would love to hear your opinion too.

  1. Disgusted of Tunbridge Wells 26th June 2012 at 8:59 am

    Interesting that Openwork felt the need to defend their decision. Also interesting there is no mention of how the £12 million upfront and £1 million pa ongoing payments from Partnership influenced this. Or that this has resulted in the best proper advisers leaving the company. Openwork will need this to prop themselves up over the next few years as customers realise what a rotten deal this is and go elsewhere to be treated properly. Hope Openwork have also made sure their payments will continue when Cinven finally succeed in offloading Partnership off onto some poor unsuspecting blighter.

  2. Disgusted of Tunbridge Wells 26th June 2012 at 9:05 am

    Interesting that Openwork feel the need to defend their decision in this way. I’m guessing they didn’t really need the £12 million upfront payment* or ongoing £1 milion a year from Partnership for the next few years, it really was all about wanting to do the best for the customer after all…

    I do hope Openwork have made sure they will continue to receive their payments after Cinven finally succeed in offloading Partnership onto some other poor unsuspecting blighter. After all, they ‘ll be needing it to keep themselves propped up when customers realise this is an appaling proposition and go elsewhere to be treated properly

    *sorry, marketing allowance

  3. Heh, heh, what self-serving twaddle from Openwork.

    The “average pot” may be 27k, but most people end up with more than one pot. The average client is likely to have in excess of 50k in pension pots, and this will rise higher with auto-enrolment etc.

    No, Openwork are a clever marketing company. They make more money with a single tie, so they prefer to do it that way.

    Fair enough, but no-one will ever believe it gives clients as good an outcome as whole of market, and to pretend it does just makes you look foolish.

  4. Sour grapes from IFA? Any ethical adviser, whether an IFA or tied, will do the best for their client. Openwork have a whole of market offering for those clients who want it.

Leave a comment