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Value call on small pots

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.

Maggie Craig
Acting director general,
Association of British Insurers


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There is one comment at the moment, we would love to hear your opinion too.

  1. I still contend that the Trivial limit should be 3% of the lifetime allowance and not 1 and with the increase in minimum retirement age from 50 to 55, the trivial option should reduce from age 60 to 55. After all, we were supposed to have pension “simplification” and this would do it.
    I can see reasons why the limit should NOt be increased, but I think the reduction in admin costs and teh xtra choice would be welcome by the general public with smaller pots. It would be a 5 minute job discussing teh disadvantages of using the increased trivial rule (hence a very modest fee) and if the disadvantages outwighed the benefit of taking as a trivial lump sum, then the nearer to 3% of the lifetime limit, the more cost effective the advice becomes to the client of considering an annuity instead and the admin cost for all parties involved, i.e. provider, adviser and also the state from the point of accounting for sucha trivial pension theough the tax and benefit system.

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