Should the terminology surrounding annuity options at retirement be clearer? Should the term ‘open market option’ (the option to shop around for a better annuity rate) be replaced with something that clearly spells out the value of shopping around.
Many do not understand what the term means and end up with an inferior annuity. Companies that believe the term ‘open market option’ should be made more consumer-friendly include HBoS, HSBC Life, NFU Mutual, NatWest Life, Norwich Union, Scottish Life and Skandia. NFU Mutual says anything more consumer-friendly would be of great benefit, while HBoS says it does not use the term ‘open market option’ in literature, instead referring to it as ‘buying from another provider’. However, Prudential says: ‘The key is that consumers should be clear they have choices. A simple name change will not make the concept more consumer-friendly’.
Consumers should be encouraged to shop around. However, often as a result of misleading literature and time pressure, people sign up to the annuity offered them by their insurer without realising they have the right to shop around. Companies say the open market option should not be the ‘default option’. Scottish Widows says it is key that people are made aware of the annuities from their pension fund provider because they may offer preferential terms, such as a GAR option.
Too many people have saved too little so need to get the best value from their pensions savings, and insurers are a key part of this…..clearly some are committed to putting their commercial greed before their customers’ interests.
Maggie Craig, Director of Life and Savings, Association of British Insurers: ‘Customer communications on annuities are of mixed quality, as the ABI has acknowledged. Buying the right annuity is very important and customers must be empowered to make an informed choice based on their needs, wants and personal circumstances.
‘The ABI is working hard with companies, consumer groups and the regulator to produce new wording for ”wake-up” letters. We want to ensure that people are aware of all the different types of annuity available and of their rights to exercise the open market option by shopping around. ‘We hope to implement these changes by the end of the year.’
