Bob Bullivant makes some interesting points in his Profile interview (Money Marketing, last week) about annuities, the open market option and the insurance industry. However, he misrepresents the position of the ABI and the annuity industry on small pension pots.
It is a fact that very small pots are uneconomic for both advisers and providers to administer, with a few notable exceptions, including Bob’s own company. If consumers want to buy an annuity with a very small pension pot, they will be able to do so but they need to consider very carefully whether they will get best value for money by doing so.
A £10,000 pension pot will buy an annuity of only around £50 a month. In many cases, people could be better off using trivial commutation rules to take the full amount as a lump sum.
As far as the Omo goes, ABI members have been at the forefront in improving the information that consumers receive in the run-up to retirement. ABI guidance specifies that the Omo should be prominently highlighted on wake-up packs sent in the months before retirement and that all the different types of annuity available should be explained in clear and succinct language in order that customers know all their options and take action to maximise value for their money.
The Options’ initiative has significantly improved the time it takes for Omo transactions to be carried out, helping to improve the overall customer experience of annuities.
Acting director general,
Association of British Insurers