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