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Small pots in the spotlight

While some companies continue to drag their feet when it comes to annuity transfers others are looking at ways of serving their customers better.

Sixteen providers are now on board the Association of British Insurers’ Options initiative, which has slashed processing times to eight calendar days.

Others such as Windsor Life, Royal London, Scottish Widows and Zurich should follow suit as soon as possible or at least admit they are putting commercial interests before those of their customers.

A couple of firms are looking to go a bit further, particularly to help consumers with small pension pots, who currently struggle to get advice, lock in a better deal.

Money Marketing revealed in this week’s issue that Aviva is considering selling other providers’ annuity products alongside its own.

We know that about 60 per cent of customers are buying an annuity with their existing pension provider and that the vast majority are missing out on a far better rate by not shopping around.

Aviva says the fact small pots are uneconomical for advisers is a major reason.

It is looking into tackling this advice shortage by offering other providers’ rates when it cannot beat the market.

Head of annuity marketing Darren Dicks says: “The vast majority of customers have what many advisers believe are uneconomical pots and there is a shortage of advice.

“We have a range of options, one of which is a third-party solution to offer other providers’ annuities where we cannot offer a good rate. We could do it ourselves or we could do it with an already established firm.”

Aviva will put more meat on the bones in due course but Ernst & Young financial services director Malcolm Kerr has welcomed the idea.

He says: “Smaller pots, in particular, need the best possible annuity rate and it is unlikely that Aviva is always able to provide that. I think this is a very sensible idea.”

Also unveiled in this week’s Money Marketing, Rockingham Retirement is launching a whole of market annuity service to tackle the shortage of advice for small pots.

The firm will trial the service – called the Annuity Clearing House – with Prudential, Legal & General and MGM Advantage from September. It will roll ACH out to the open market as soon as possible.

ACH will offer conventional and with-profits annuities as well as impaired and enhanced products.

Advisers will complete a medical form for their client either on the ACH website or over the phone. Rockingham Retirement says this takes just five minutes.

The top annuity rates are instantly generated on a single electronic application form, which is signed by the client.

Advisers can white-label this process or hand the case over to ACH. ACH will offer advisers 1.1 per cent commission compared with the 1 per cent they would earn if they advised on the annuity themselves.

Managing director Steve Hunt says if the system is effective, ACH will consider a direct to consumer version.

Hunt says: “Official data shows fewer people are utilising the open market option when looking for the best annuity deal. This is primarily because most people believe there is too much complex trawling of the market involved.

“But ACH will enable the individual, through their IFA, to achieve the maximum possible income for the least effort.”

Do you think either of these proposals would work? Is there a need? Let me know your thoughts by clicking on the link below.

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Comments

There are 2 comments at the moment, we would love to hear your opinion too.

  1. Small Annuity Pots
    I think Aviva are being ambitious they cannot effectively administer their own Annuity never mind anyone else’s. I think this is anoth NU recipe for disaster. With regard to the pension pots being too small for advisers to look at I think this might change if the insurance companies/pension providers can complete an Open Market Option more efficiently and within a shorter time frame as this would mean less time wasted by IFAs and their staff chasing these companies regarding transactions which should already be completed.

  2. Simple Solutions are best
    As I have said elsewhere, increase the Trivial Pension limit from 1% of lifetime allowance to 2 or even 3% of lifetime allowance and make it so that ieven if yoy have in excess of the Trivial pension limit across all pensions, any under say £3k can be paid out in one lump anyway (segmentation not allowed, base it on ascn numbers). That’s all the costly admin of small pension pots gone overnight and we can get back to advising on things which will benefit the client rather than explaining problems for lower earners. Currently it is more complicated (hence costly for advice) to advise someone on pension credit in rented accomodation and £40k in pensions, than someone with a £200k pot, £100k investments and an unencumbered property worth £400k! The whole benefit system discourages saving. But then it kept the economy going for the last 8 out of 10 years, but we will now ALL pay the price of this mismanagement.

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