Many people are getting higher UK pension annuity rates by using the open market option. Improvements in the open market option process could help retirees gain £3.3bn in extra retirement income by 2030, according to recent research by the Pensions Income Choice Association (PICA). The research, carried out across the South East of England, London and Manchester earlier this year asked groups with pension funds of between £5000-£100,000 to discuss their experiences of converting a pension into a retirement income, or an annuity. A majority of respondents who had already retired pointed to the administration, the volume of paperwork and use of jargon as key complicating factors in the annuity process.
Again, the majority of participants demonstrated little clear knowledge of the open market option and its impact on their important retirement income while those with smaller pension funds felt that shopping around was only appropriate for those with pension funds of at least £50,000. Participants were also asked to give feedback on whether the three step annuity process put forward by PICA in its Optimising Value in Retirement (OVR) report would improve the current process. This involves: a focus on the choices and decisions people face at retirement and the action they should take; production of a personalised statement containing sufficient information for people to use to obtain alternative annuity quotations; and a short communication requiring the member to inform the company/trustees how the pension fund should be applied. All communications sent in this annuity process are to be written in a clear, unbiased manner with as little jargon being used as possible.
The response to this new plan was overwhelmingly positive with respondents impressed by the increased clarity and ease along with the reduced use of complicated jargon. Those approaching and recently retired agreed the three step process has raised their overall awareness of the open market option and how it could be used to advantage. The consumer research conclusions were extremely positive to PICA’s proposals, commented PICA board member Steve Lowe. He added that by adopting the new shopping around three step process retirees could be accessing billions of pounds of additional retirement income and importantly getting access to a more appropriate range of retirement product and better UK annuity rates. PICA’s next step is to share the findings with policy makers to seek a change to the law by replacing the open market option we currently have with a new Pension Passport.
