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Robert Reid: Nine ways to fix the annuity market

As the FCA’s review of the annuity market failed to provide any suggestions to tackle the problems, Robert Reid offers some straightforward ways to improve consumer outcomes.

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When one of our clients dies and they have annuities in payment that we did not organise, we seek evidence of conscious purchase where an annuity on a single life basis is in place.

Currently we have an ongoing battle with a major insurer whose handling of the complaint has been inept at best and at worst plain stupid.

On two occasions they have committed to settle, their offer made by one of their senior sales managers then retracted, at the insistence of their compliance team.

They have no record of the conversation; no time line of issuing docs and use a series of terms for the same benefit which only serves to confuse.

The root cause in this case is the habit of providers (fellow sheep) to quote on a single life basis; if they were to quote on a joint life basis then this could have been avoided.

Like it or not when you offer four options and none of them include joint life you are asking for trouble.

To refer on the options form and the key features to spouses pension and dependents pension as if they are interchangeable leads to confusion. To have no proof that either was issued or received shows the danger of packs that are a series of forms and not a single set.

I have some suggestions that could be put into place immediately which would remedy the situation:

  • Wake up packs should talk about clients leaving to take OMO as the default
  • Omo acronym to be replaced by a more client friendly phrase, for example “shop for annuity”
  • Period of reflection, say 30 days
  • Issue Omo option packs with joint life as the default
  • Validate decisions with client feeding back
  • Companies should stop referrals to a single annuity provider
  • Adviser referrals should only be to those offering whole of market – no panels
  • The FCA should set benchmarks for the non-advised process and should encourage taking advice.
  • This is the area where simplified advice could work at its optimum.

As I stated in a previous column, we use the combined enhanced form completed for all clients at retirement by an external resource that uses medical professionals to pose the questions.

The claim chasers are already eyeing the annuity market as easy meat and advisers need a prescribed and detailed process if they are to demonstrate the right advice was given.

All of this will become somewhat academic when all annuities are underwritten and the tipping point has been reached where investment risk has more appeal/potential than a fixed annuity.

Also for those with larger amounts at retirement, an annuity is not the only solution and a mix will in many cases deliver the better result and accommodate the options needed.

Back to my client, it is now over 12 months since we made the enquiries and the time spent by me and by the provider must now dwarf the cost of settlement – proving a complete absence of pragmatism.

I have a deadline of the end of February to have an agreed appointment with their CEO. If that meeting does not take us forward then I will need to go public given the media interest in all things annuity. In the long term the ostrich approach by this compliance team could cost them dear , not just my custom but that of my fellow professionals.

Culture is the most important element of a regulated firm’s structure, its absence leads to an absence of client facing strategy with real intent.

People have criticised the FCA for the lack of positive action but the actions I have suggested are a great start and some proactivity from providers would be no bad thing.

Robert Reid is managing director at Syndaxi Chartered Financial Planners

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Comments

There are 4 comments at the moment, we would love to hear your opinion too.

  1. I think this a great article and some very good suggestions. I also agree that the potential of simplified advice for annuities were almost made for each other, when a person does not feel confident in selecting the basic options of an annuity.

    I will add to the suggested list as well. I would suggest a ban on non-advised annuity services converting GMP into a conventional annuity without regulated advice, as without analysis it simply isn’t clear on what is the right step. We know it happens.

    Another suggestion would be that those alternative solutions like investment linked annuities, fixed term annuities and even drawdown should not be available on a non-advised basis. I simply cannot imagine the majority of clients understanding their own capacity for loss, attitude to risk or the detail of these contracts work for it to be a safe purchase without advice.

  2. I agree – some great ideas as usual from Robert. I don’t agree with banning non-advised use of drawdown, fixed term annuities etc. but what is needed is greater awareness of the need for and value of advice in this area, some new ways of delivering that advice and a simplified drawdown regime.

  3. Excellent article from Robert Reid. I am inclined to agree with James Dean about banning non advised drawdown, but I just don’t like banning of things if someone DOES no what they are doing. Investment linked and fixed term annuities……. no I think a unit linked annuity a client should be able to purchase without advice if they wish……

  4. Excellent article. The only comment I would make is that from past experience single policyholders and those who have recently lost a partner are not that happy to assume joint life. Fine to use that as a default if it is known policyholder definitely has a partner but I very much doubt records held are that comprehensive.

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