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We need a wide-ranging shake-up of annuities and service

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Social and economic factors are rapidly changing the retirement landscape and the Government is introducing radical alterations to the state pension system and retirement rules.

The retirement industry must play its part in rethinking the way serves its customers. We must take practical steps to help maximise their income.

This week saw the launch of the Rethinking Retirement Report by Aviva. We propose a series of reforms to the retirement industry which we believe are necessary to address the issues in the marketplace, namely, motivating retirees to shop around for annuity rates with the open market option, creating an annuity market fit for the future and creating steps to ensure individual customer needs are met.

Many retirees do not know how to get the best annuity for their circumstances. This could be costing them thousands of pounds, with two-thirds automatically buying the annuity offered by their pension provider rather than a potentially better product.

Annuity providers are not required to publish their annuity rates. Many companies do but there is still a significant minority allowing no comparisons. Aviva wants publication of annuity rates to be made compulsory, where the best market rates are highlighted to retirees when the annuity they are being offered by their pension provider is 10 per cent less than the best rates available in the market for the same type of product.

Many consumers miss out as they do not realise they may be entitled to an impaired-life annuity. Aviva proposes that by including basic medical questions in all customers’ pension maturity packs, those who qualify for such an annuity will be more easily identified, allowing firms to automatically offer them a tailored product.

Retirees are also living longer and the way in which they have built up their pension savings differs to previous generations. Recent Aviva research found a third of workers have five jobs throughout their lifetime, with many accruing a number of small pension pots. Aviva believes legislation should be introduced to allow the automatic transfer of small auto-enrolled pension pots, allowing savings to follow members when they move jobs and providing them with better annuity purchasing options when they come to retire. In addition, non-advised annuity sales should be subject to the same cost transparency rules as advised sales.

Key to all of these reforms is the need for the right level of guidance and advice. It should be simple for every person to choose the level of advice they need when making financial decisions on their retirement.

To bridge the gap between non-advised, direct purchases and full independent advice, Aviva believes the industry and regulator should press ahead in developing simplified advice. By creating a new form of adviser “badge”, customers know that if they talk to a retirement adviser they will be able to create a plan that addresses all their financial needs.

Clive Bolton is at-retirement director at Aviva

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Comments

There are 6 comments at the moment, we would love to hear your opinion too.

  1. Julian Stevens 2nd June 2011 at 9:21 am

    Annuities, annuities, annuities. The industry needs to be lobbying the government as hard as it possibly can for the annuity trap (possibly the single biggest deterrent to retirement saving) to be consigned to history. To demonstrate that there can be a viable alternative to annuity based products, a company such as MetLife should come up with a retirement income product that isn’t annuity (rate) based.

    It would, of course, also help if the government were to honour its pre-election promises to undo all the damage done to confidence in retirement saving by 20 years of misguided meddling and tinkering with the framework by which pensions are governed.

  2. The retirement industry must play its part in rethinking the way it serves its customers.We must take steps to maximise their income.I certainly do not have a problem with that concept.However how about increasing our pension pots at the same time by decreasing your charges.UK pension charges are some of the highest in the world and if the pension’s industry will not address this ,I will have to have on behalf of all UK pension investors.

  3. David Trenner - Intelligent Pensions 6th June 2011 at 8:48 am

    I agree with much of what Clive Bolton says, but I am concerned at the ‘simplified advice’ concept. Consumers will see simplified advice as cheap advice, rather than inferior advice.

    Retirement income options are becoming more and more complex and clients with pension funds of more than about £50k should pay the going rate for advice.

    Lesley thinks that providers and advisers should work for free because she does not understand how we can add value.

  4. David Trenner-You are so wrong to patronise me.I have seen the absolute hash one set of advisers made of my husband’s pension,that I decided to investigate the product myself.Aviva had placed my husband in the wrong plan and the wrong fund from inception.The advisers picked this up and advised Aviva.However there was no follow up as the advisers which were no doubt paid handsomely for continued to send out valuations that were incorrect for wait for it the next five years yes five years.It was me that picked this up not them.Aviva also placed my husband’s pension contributions in the wrong account.Guess who picked this error up yes me again.I choose all the funds now for my husband’s pension and what a difference with me in control as opposed to the so called experts.I have every right to have absolutely no faith in advisers or pension providers so do not ever patronise me again.

  5. David Trenner – would you have been so patronising to Lesley if the name had been ‘Leslie’?

    Clive – are Aviva members of PICA, the pressure group set up by some providers and Hargreaves Lansdown to campaign on a lot of the issues you raise here?

  6. David Trenner - Intelligent Pensions 6th June 2011 at 2:58 pm

    Lesley – and Mark – I was not patronising you. I was making the point that IFAs have to demonstrate to clients and prospective clients that they can add value. Your advisers clearly failed to do that.

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