There is a huge amount of money being wasted because people are failing to shop around for the best annuity rates, as much as £500m a year.
40% of all those looking to purchase a pension annuity contract at retirement would qualify for some form of enhanced annuity rate. However, only 11% are currently exercising this right despite it underpinning the Open Market Option (OMO) annuity provider, Just Retirement, estimates.
HM Treasury in its update on the review of the OMO, published yesterday (27 November) stated that work is still needed to help retirees choose both the best annuity provider and the right type of annuity they take.
The Treasury has confirmed that 60% of those taking an annuity from a personal pension do not use the OMO. In addition, 40% per cent of insurance companies information packs do not even meet the FSA’s minimum requirements under Treating Customers Fairly (TCF).
In their own research Just Retirement found that 79% of those approaching retirement age had not heard of the OMO, while only 27% of respondents could correctly define what a pension annuity was.
The review by HM Treasury highlights the task faced by the industry in improving the use of the OMO. Put simply, this will only improve when understanding amongst retirees is improved.
There is hope that the industry takes this review in the manner in which it is intended. It is a wake-up call on the government’s general commitment to the OMO. Time will tell if this improves the situation in the medium term.
