The open market options effecting pension annuity purchases should be mandatory, a senior product designer has warned, following government research showing people do not understand the process. According to a DWP report pensioners are missing out on retirement income because they believe taking their  annuity open market option is “complicated, time-consuming and not worth the effort”.

The report, Information Needs at Retirement: Focusing on Annuitisation Decisions, published recently claimed that while there is growing awareness of people’s entitlement to switch annuity providers, there is little appetite to do so, or belief it is worthwhile. The research is based on 60 “in depth” interviews with a selection of people, both receiving annuities and shortly to be eligible to do so.

The report also concluded people tend to over estimate the cost of employing IFAs, also they are broadly aware of their option to defer annuitisation, take a 25 per cent lump sum.

The document states: “Participants were usually aware that they had the option to purchase an annuity from a provider other than the one with which they held their pension fund but often believed that it would be complicated, time-consuming and not worth the effort to pursue this.

“In fact, actual awareness of the processes involved in exercising the open market option and of the impact it might have on their final pension income, was very low.”

But Phil Brown, head of retirement and care product development at Partnership Assurance, said the research did not teach the industry anything new and the report recommendations were not strong enough.

“Changing the wording of letters is not going to change the behaviour of customers and not enough people are even considering their open market option,” he said.

“It would be a lot simpler if it was compulsory. The report is highlighting the issues and it talks about improving communications but that is not enough by itself. We need an answer to the confusions and the complication.”

We would agree that the open market option should be mandatory for retirees.

This entry was posted on Monday, July 21st, 2008 at 3:26 pm and is filed under Annuity rates, General, Open market option. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.