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Pada has the power

Does the Personal Accounts Delivery Authority realise it wields the power to revolutionise the decumulation market in the UK as well as the pension savings world?

Chief executive Tim Jones recently told Money Marketing that Pada is considering making the open market option the default for the decumulation of personal accounts.

The authority proposed setting up a panel of providers to supply annuities to retiring investors in a consultation document launched in December but Pada’s thinking seems to have moved on, which has come as a relief to many.

Jones said: “Before we got into this consultation, I thought that what one might call automatic Omos were insufficiently developed to be a credible alternative to a provider panel.

“We have now had people suggest we might be able to get our problems solved through an electronic Omo and not need a provider panel and I think that is definitely worth further investigation. We are not hung up on a provider panel, what we are trying to do is fix a problem.”

The implications of Pada choosing a whole of market solution would be far-reaching, according to experts.

This is because personal accounts will set a benchmark and, if Pada chooses the Omo, that benchmark will be significantly higher than where many conventional providers currently sit.

Insurance companies continue to enjoy a large chunk of their pension customers rolling over into their annuities even if there is a far better rate on the open market.

Last year the number of people using the Omo actually decreased to 37 per cent from 39 per cent in 2007 which some have put down to the nightmare delays many customers are experiencing when transferring their pension funds.

Hargreaves Lansdown pensions analyst Nigel Callaghan says: “This would be a great development and would help drag pension companies kicking and screaming to the Omo table.

“Personal accounts is predicted to have seven million members. This would be such a huge investor shift that insurers would have to sharpen up their acts.”

But we will have to wait and see whether Pada changes tack. Go boldly Tim. Then providers will be forced to keep up with the Jones’ (sorry) and customers will have a better retirement.

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There are 3 comments at the moment, we would love to hear your opinion too.

  1. At last something good
    Might come out of personal accounts. Realistically I don’t see how any option OTHER than OMO would be acceptable for these and this really could make the insurers sit up and be fairer about the annuities they provide.Just a pity that I’d much ratehr see personal accounts and pada go out the window and we simply get autoenrolment on StakePPs and GPPs, which was/is all that was needed in the first place. Personal accounts just re-invent an expensive wheel when most single charged group schemes would have done the job perfectly well for a lot less hassle.

  2. Julian Stevens 18th June 2009 at 6:19 pm

    PADA has the power
    The power to do very little, if you ask me. What we really need is not compulsion but instead a root and branch reform and simplification of the pension system, so that setting aside money into a Personal Pension would become so attractive that anyone with anything spare in their monthly budget would be more or less stupid not to take one out. All this could be achieved with no significant tax concessions on the part of the government, save for lifting the tax on dividends and allowing unspent funds in retirement to pass to the pension plans of the next generation without being taxed. But this government, with their fat, index linked public sector pensions paid for by the rest of us, just won’t listen. Why won’t it listen?

  3. Tiny OMOs ?
    A huge number of PAs will have tiny funds in the early years, yet the members may have benefits elsewhere which preclude the trivial commutation option.

    Might it not be the case that a PADA negotiated annuity deal for small funds could provide better rates than a trvial fund OMO which no provider actually wants on it’s books ? < and consequently deliberately offers a poor rate to deter the business >

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