The Personal Accounts Delivery Authority says that the admin costs involved in collecting and processing medical information for providers, particularly in the case of smaller pension pots, can end up cancelling out the advantages of an enhanced rate.
Investment director Mark Fawcett says: “We certainly think enhanced and impaired could have a role, given the characteristics of our target market, but can we deliver them in a way that is cost-effective? You can conceive of a situation where the costs associated with setting up an enhanced annuity outweigh all the theoretical income benefits so the actual rate quoted in the end is identical to a standard annuity or even worse.”
He says some annuity providers have already ruled themselves out of being represented on the decumulation panel.
In addition to the default fund, which is likely to include emerging markets and hedge funds, Pada is planning to have a Sharia fund and an ethical option as well as risk-graded versions of the default fund. It is also considering a cash or cash-like fund although it is concerned about the inflation risk.
Fawcett says: “We have not finalised our recommendations but our thoughts are no more than 15 and, to be honest, we are struggling to come up with more than 10 different choices.”