The UK is facing a retirement crisis, with many pensioners lacking adequate income. Eighty per cent of pensioners have pension pots of £40,000 or less and many will face years in poverty.
Research conducted for the Pension Income Choice Association by Oxford Economics and the Office for National Statistics reveals that 23 per cent of pensioners – 2.5 million people – live an impoverished retirement.
One of the ways people can increase their income at retirement is by shopping around for the best annuity rate in retirement, the open market option. This can result in enhanced retirement incomes of up to 40 per cent or more for those with health and lifestyle conditions.
Only one in three exercise the Omo, with those who have smaller pension funds being less likely to shop around.
But the RDR may play a significant unintended role in stopping pensioners from maximising their retirement income. Research among Partnership’s customers demonstrates how critical financial advisers are in the annuity purchase process. Fifteen per cent of customers were not aware of the term “annuity”, despite having bought one recently. Among those annuitants who were aware of the term, only 54 per cent knew what an annuity was. This highlights our fear that an unavoidable consequence of higher qualification requirements under the RDR will be significantly reduced access to financial advice, both due to a reduction in adviser numbers and the effect of fees.
We support the principles underpinning the RDR but access to competent advice for people with small funds is preferable to no advice at all and we must not let a search for the perfect solution mean most people get a significantly worse outcome.
Partnership is calling for major consumer-facing organisations to put in place structures which enable people to shop around for the best annuity rate as efficiently and effectively as possible before the implementation of the RDR.
Without urgent attention, the RDR will result in considerable consumer detriment and loss of much needed retirement income.
Andrew Megson is managing director of retirement at Partnership