The Association of British Insurers latest new business figures show the number of people exercising the OMO dropped in 2008.
Only 169,000 retirees – or 37 per cent – bought an annuity from a company other than their pension provider last year, down from 170,000 in 2007, despite the total number of annuities sold jumping 4.4 per cent to 452,000.
According to Rockingham Retirement’s research, low levels of OMO take up are costing pensioners around £1.4bn a year. Managing director Steve Hunt says there is a “grave danger” of a massive misselling scandal if providers do not step up.
He says: “It’s clear from these figures the message isn’t getting through and the insurance companies need to do more to promote the OMO – with IFAs and life companies circling these funds there is a grave danger of another misselling scandal on a massive scale. Pensions giants are not giving best advice to hundreds of thousands of retired people who need income more than ever.”
Pensions expert Ros Altmann says: “Now, more than ever before, it’s so important that those on the brink of retirement are made aware of their options and choices. It’s the duty of the Government and the pensions industry to do absolutely everything within their power to raise awareness of this issue.”
ABI spokesman Jonathan French says: “It’s unfortunate that both Mr Hunt and Ms Altmann seem unaware of the work being done by the ABI and annuity providers to make the options people have at retirement clearer, including prominent promotion of the OMO, and how its use could give better value for money, on ‘wake-up’ letters. This was never going to change things overnight but as the new letters are rolled out, customers will have clearer information about how to get best value for money. The Options initiative to speed up OMO payment transfer times is also well underway and already having a positive impact.”