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Partnership: RDR may stop people maximising retirement income

Andrew Megson, managing director of retirement at Partnership, calls for a new push on the Omo

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

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  1. Nothing very new or enlightening here. Subject to careful selection of the route to QCF Level 4 that’s right for you, the RDR qualification requirements aren’t actually that onerous. I hate poring over textbooks (they send me to sleep) but, one way or another, with help from our network, I’m going to manage it (hypnotherapy’s looking like a favoured option to help me believe I can actually do it).

    Secondly, CAR by deduction from the pension pot isn’t going to make the cost of exercising the OMO any more difficult than it is now. I have at the moment a client of very modest means whose best option is going to be to vest with his existing provider. Said provider won’t pay commission on the deal, so I he’s going to have to sign an agreement to pay us a fee out of his TFC.

    As for “structures which enable people to shop around for the best annuity rate as efficiently and effectively as possible” ~ just what does Mr Megson have in mind? When all else is said and done, I find it hard to envisage any sort of abridged methodology for explaining properly to lay people all the different annuity options available, not to mention establishing whether or not their existing policies contain any GAR’s.

    The only way to address long term the challenges posed by very small pension pots is for the government to encourage people to build up bigger pension pots. Sadly, there seems to be no sign of any initiative on that front.

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