A bit of a strange one this, but are retirees being hit ’false’ charges when they retire for advice they never received? The money we are talking about, which could be up to £1,500 on a £100,000 pension pot, goes to the adviser that originally sold you the pension contract. Remember that £30 per month arrangement you entered into all those years ago? They get this even if you haven’t heard from them since the day they sold it.
The amounts are triggered when the retiree uses his/her pension fund to buy a pension annuity, but doesn’t shop around using the open market option (OMO). This charge is around 1.5% of the fund value, and is payable to the adviser whether he helps or not.
They are part and parcel of many older pensions contracts from many providers, including the likes of Standard Life, Axa, Scottish Life and Legal & General.
As up to six out of ten retirees simply roll over into their existing pension provider’s pension annuity, even if it offers a terrible annuity rate, these charges are incorrect. They are meant to reward the adviser for helping you find an annuity with the best annuity rate.
The vast majority of retirees buy a pension annuity contract when they retire, and almost one million are expected to buy one in 2009.
A Financial Services Authority (FSA) report found that many insurers are failing to tell retirees clearly about the benefits of shopping around using the OMO for the best annuity rate, and this really doesn’t help matters.
Apparently, these contractual agreements were the norm for the industry, with the expectation being the provision of ongoing advice.
There is another side to this. If you do decide to utilise the OMO and shop around for the best annuity rates, and you do so with an adviser, then they get paid for doing a proper job (we hope).
