A forthcoming consultation by the ABI about annuity rates and the use of the open market option has been welcomed by the pension industry. Fidelity’s Richard Parkin states that while we don’t have shopping around using the open market option as the default option at the moment he thinks that this consultation has moved forward more than it was originally intended to in terms of illustrating the benefits of enhanced annuity rates and ensuring insurance companies give people the appropriate information they need to use their open market option and shop around.
He adds that the consultation has introduced a prescribed sales process that requires to be followed when individuals come to buy their crucial retirement income. This revised process ensures anyone buying an annuity needs to be asked about various issues such as their marital status, their need for an increasing income as well as basic information about their lifestyle and their state of health. This gives the financial adviser more information to go on, and, even if the insurance company does not provide an enhanced annuity itself, they still need to highlight the benefit of an enhanced annuity to their customers.
While the ABI consultation about annuity rates has been received positively by most some issues do remain. The issue of insurers sending unsolicited annuity quotes to their customers has been highlighted by several insurers concerned that this might result in customers making inappropriate retirement choices. When it comes to buying an annuity people will tend to tick the box with the best starting income which tends to be the single life, level income annuity, suggests Fidelity’s Parkin. He adds that by sending unsolicited annuity quotes you are effectively showing a customer a number before you know anything about them or their circumstances.
People need to be guided through a process of talking about generic annuity rates before going into more detail regarding product choices. Parkin cannot see what insurers would have against such a sales process except that it might prove complex to remove these annuity quotes from their literature. While such a sales process should be pretty straightforward for many insurers it may be more of an issue for some of the larger ones with many clients on their books.
Lack of customer awareness about getting better pension annuity rates utilising the open market option is an issue that needs to be dealt with, and that’s why the Government’s open market options group is consulting with various organisations like The Money Advice Service as they will play an important role in any changes. People nearing their retirement need to be able to access good information and the press also has a significant role to play in this. Mind you, we believe we tell you everything you need to know about your various retirement options on this website.
