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Stop believing that Omo is good enough

THE EDITOR’S COMMENT OF THE WEEK

Web comment in response to John Lawson’s column in last week’s MM defending providers over the Omo

There is not enough space to list why this market is so inefficient. I find it unbelievable that anybody would suggest that good outcomes are being achieved for most customers. An independent macro-economic assessment by Oxford Economics at the end of 2009 found that customers could improve their outcomes by over £3bn by improving the shopping-around process.

Do we really believe customers shop around and then say, I will forsake those many thousands of pounds?

The open market option (it should be more aptly called the one market option) facilitates shopping around for one retirement income solution – a lifetime annuity and it amplifies a focus purely on rate. There are now over 10 retirement income choices available to advisers and their clients – the question we need to address is why do most people (nine out of 10) end up in one category often with inappropriate options selected – this is not informed purchasing in many cases? Often, it is ticking a box to get an income as quickly as possible because the thought of working through a sleep-well-at-night pack that is 30-plus pages is too overwhelming.

The opportunity is to get customers first into the most appropriate retirement income solution with features that meet their changing needs – and Omo does not do that – it is not compulsory Omo being called for but compulsory shopping around. This is not an efficient market that delivers great outcomes – we all have to be more ambitious to deliver a better solution and stop believing that what exists is good enough.

Steve Lowe
Marketing director, Living Time

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Comments

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

  1. I am not sure if Mr Lawson is being disingenuous or merely displaying the ignorance of one who is an employee of a single firm. First of all Standard Life itself could do a great deal to clean up its own act. Their contact literature, when one approaches retirement (and I speak from personal experience) is a very heavy tome with an awful lot of paperwork. It assumes that you have made up your mind to retire as the heading is “You are due to retire, now is the time to decide”. Indeed sometimes it has been decided not to take benefits. The one useful piece is they give you the value of the fund on the first page. Then it goes on to provide a whole load of absolutely useless piffle and it’s only until you get to Page 5 that there is mention of the open market option. In that paragraph it still punts for it’s own ends by telling people they may combine their other pensions with Standard Life, but nowhere does it say they need to consult an independent financial adviser. It assumes on Page 7 that you contribute regular premiums. It doesn’t take into account that many people only contribute single premiums and may well wish to leave this particular fund where it is. All this goes on for 9 pages accompanied by what they call a guide with pretty pictures with much of the content, both confusing and irrelevant, with 19 pages of not very much. So then you get the key facts document – another cardboard edition of some 7 pages. Do they really think that customer’s are going to read all this and even if they do get through it all, by the time they get to the end they have probably lost the will to live.

    In his article he states that 20% of customers purchase their Annuities with less than £5,000. That may well be the case but how does he know that they didn’t have other Pension arrangements in place as well and could have amalgamated and had a fund 10 times, or even more than that magnitude which could have qualified quite easily for a decent open market option.

    So in essence Mr Lawson, there is an awful lot wrong with the way that the members of the ABI treat and deal with the open market option and a great deal of room for improvement. It is precisely this self satisfied attitude that has disadvantaged so many clients for so long.

  2. Harry, interesting points, your comments do rather make the case for a “national advice service”, but preferably with a change of title to “national infromation service”. If the FSA were really serious about this issue, they could have a one phone number system for this service that put individuals through directly to IFA firms willing to talk to identify and highlight the issues a client needs to consider, with the conversation recorded by the FSA so that no advice was given, just info. That would perhaps pick up issues like the OMO, triviality, guaranteed annuity rates, loss of death benefits and might result in more people then seeking advice where it truly is appropriate, without the adviser carrying the liability of the comments…

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