Product providers and advisers are lining up to attack single-tie annuity deals, warning they could damage adviser networks and potentially leave clients out of pocket.
Last week, Partnership signed an agreement with Openwork which will see it become the sole provider of both standard and enhanced annuities to the network. As part of the agreement, the provider must offer a top-five rate for both standard and enhanced annuity quotes. Openwork proposition and marketing director Philip Martin argues this clause was inserted to ensure clients are not offered uncompetitive annuity rates.
But the Retirement Partnership director Billy Burrows says: “The top-five quote guarantee is meaningless. The difference between the best annuity rate and the fifth-best is between 10 and 12 per cent for small pots at today’s prices. This type of deal just feels wrong.”
Aviva head of retirement Darren Dicks says: “Saying you are going to provide a top-five annuity does not guarantee a competitive annuity deal. There are only three active providers in the conventional annuity market and four or five in the enhanced market.”
’The top-five quote guarantee is meaningless. The difference between the best annuity rate and the fifthbest is between 10 and 12 per cent at today’s prices. This type of deal just feels wrong’
Just Retirement external affairs and customer insight director Steve Lowe says: “The top-five guarantee does not provide a sufficient safeguard for customers. There is a big difference between the fifth-best rate in the market and the best rate.”
Dicks says an increase in the number of single-tie arrangements will force clients to shop around for distributors as well as providers to get the best annuity deal. He says: “With the RDR approaching, single-tie deals of this sort are potentially bad for advisers and definitely bad for customers. For a number of years now, the focus of the industry has been around encouraging customers to shop around for providers. I think increasingly with this type of deal, it is likely the message will have to be, you need to shop around for distributors.”
’It must be clear to the customer what service it is they are getting from their adviser’
Hargreaves Lansdown head of pensions research and Pica chairman Tom McPhail has led the drive to increase the number of people who shop around at retirement but he says: “I think we need to take a pragmatic view about what is achievable in delivering good outcomes for as many people as possible. We want to get as many people as possible achieving the best rates they can. Hopefully, market forces, together with the reforms being put in place by the Association of British Insurers, will ensure customers do gravitate towards the best answers.”
LV= head of annuities Matt Trott (pictured) says any single-tie arrangement between a network and a provider must be clearly disclosed to the end-customer. He says: “An adviser who is able to offer a whole-of-market solution may be able to provide customers with better rates than a tied adviser but the key is disclosure. It must be clear to the customer what service it is they are getting from their adviser.
“If that is a tied service, then provided the adviser is very clear about that, I do not think it is a problem. People will need to shop around distributors and the FSA is trying to encourage this anyway.”
Openwork advisers will still be able to refer clients through the network’s IFA service depending on client need.Openwork proposition and marketing director Philip Martin says: “Our challenge is to ensure customers with smaller pots can be economically serviced after the RDR. It is not clear to us how an adviser can undertake a full Omo exercise with an appropriate charge for a client with a small pension fund.”