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Will another body solve the problem?

Various parties with interests in the retirement space have attempted to boost the open market option take-up with some valor in recent years.

The FSA has probed providers’ wake-up packs and the Association of British Insurers’ Options initiative has sped up the transfer of funds in many cases. The Pensions Regulator and the NAPF have also dabbled in this area.

But the issue of getting consumers to exercise choice to get the most retirement income from their pension savings is still “dead in the water”, according to a new industry group which will champion more retirement choices.

MGM Advantage, Living Time, Partnership Assurance, LV=, Canada Life, Hargreaves Lansdown and Bluefin have joined forces to form the new body to lobby for change.

So what impact will this have?

MM broke the news that the group was being set up on Wednesday. It is yet unnamed and is developing a manifesto that aims to turn the status quo on its head.

The seven firms listed above make up the management board of the group and a wider group of providers, adviser firms and consumer groups will be invited to join an advisory board, which will contribute to the group’s work.

The body will be funded by its membership. Hargreaves Lansdown head of pensions research Tom McPhail is acting chairman, with a permanent, independent, chairman still being finalised.

McPhail says: “If you look at where we are at the moment, about a third of the market place is genuinely using the Omo and a substantial number of people are not shopping around and are making what appear to be inappropriate decisions at retirement.

“Those are the issues we are trying to address. A range of different bodies are aware that the problem exists and yet we do seem to be dead in the water. The change in consumer behaviour is not happening.”

The group’s timing seems apt, what with personal accounts looming, the demise of final salary schemes accelerating, baby boomers descending on retirement in their droves and therefore decumulation and an impending general election which means the policymakers’ ears are open.

And the potential win for consumers is massive as retirees are losing a collective £2bn a year from not using their pension funds efficiently, according to Hargreaves Lansdown research.

McPhail adds that advisers also stand to gain if the body achieves its goals.

He says: “Too many people are making poor decisions at retirement and an awful lot of those people, the majority, are not receiving the benefit of financial advice.

“It is a fair assumption that advisers have a key role to play in the resolution of this issue, that whatever outcomes occur getting more people to make greater use of the services that advisers have to offer will be a key component of the solution to this problem.

“If we have 100 per cent of people shopping around a lot of them will be seeking financial advice so this should be good news for IFAs.”

So far MM users seem to be backing the group. Do you think a body like this is needed? Or are the ABI and the regulator doing enough to help consumers here?

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

  1. Julian Stevens 9th July 2009 at 6:39 pm

    Will another body solve the problem?
    Having skimmed through the latest edition of the FSA’s booklet that all providers are required to issue with their retirement packs, my impression is that it’s pretty good. It talks in simple terms about the OMO, not forgetting to mention GAR’s of course, and enhanced/underwritten annuities, these being the fundamental areas on which the great majority of retirees should focus. If those who receive the booklet choose either not to read it or to ignore what it says or are too mean and short sighted to spend a bit of money consulting a good IFA, then more fool them. You can lead a horse to water but you cannot make him drink. Why all the wringing of hands? In this area at least, the FSA seems to be doing a good job, but there are practical limits to its powers of persuasion. That having said, it may just be that the reputation of the FSA is now so tarnished in the public mind (and it assuredly is) that many people may cast aside the booklet simply because it has the FSA’s logo on its front cover. Or maybe people are so completely disillusioned with all the damage done to pensions over the past 10 years that all they want is the quickest, simplest and easiest route to getting their fund vested. Who knows? We have a widespread retirement savings crisis caused in large measure by a government that seems either unable or unwilling to take the radical steps needed to sort it out. The only hope for meaningful action is a change of government.

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