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