Getting best UK pension annuity rates may not always be the answer to individual’s retirement income requirements. It looks like somewhere deep within the recent pre-Budget report notes were a few paragraphs devoted to the progress made on increasing uptake of the open market option (OMO). All those hoping the word progress actually meant signs of success, should maybe think again. 2008’s pre-Budget report update included two pages of information covering a few initiatives and some interesting figures. This time the update was summed up in three short bullet points.
The first point stated the FSA’s online annuity rates comparison tables had received 228,000 visitors in an unspecified time period. The second point briefly mentioned good work done by the Association of British Insurers (ABI) on providing improved customer information and reducing pension fund transfer times. The third point touched on the Pensions Regulator’s report regarding the retirement information provided to defined contribution (DC) pension scheme members.
The previous years’ pre-Budget reports also mentioned that 40% of those taking a pension annuity from a personal pension plan had exercised their OMO. Of the remainder, about 50% were unaware of their right to shop around which is why the aim to improve information to pensioners regarding the OMO remains so important. A year later and fresh figures from the Association of British Insurers (ABI) provide little evidence that uptake of the OMO is improving. Indeed, it unfortunately remains pretty stable. Perhaps more worryingly it appears that OMO utilisation is far higher among personal pension plan holders than occupational schemes.
The retirement income market is forecast to grow massively over the next five years, to about £23bn from around £14bn in 2008. As the numbers of pensioners increase and the size of average pension funds get bigger, there will be more opportunity for advisers who have efficient systems to handle a wide range of retiring clients in order to benefit from this rapid growth. We are also seeing some major institutions devoting more energy and effort into this developing area which should help spread the message, and encourage retirees to look out for better UK annuity rates.
The Pensions Income Choice Association (PICA), the new industry group, is lobbying for a number of changes at the highest levels (government, for example), and the annuity providers themselves are also sensing that times are very much changing and starting to reposition their own retirement service provision, as we are seeing at Aviva (was Norwich Union) with its interest in offering rival providers’ annuity plans and also at LV= (was Liverpool Victoria) which is putting the finishing touches to its soon to be launched fixed-term annuity.
Anyone who does exercise their OMO at retirement has effectively ruled out, whether they know it or not, the other 90% or so of retirement income solutions that are available to them. As Pica has understood, the retirement income market will eventually start to provide better value when pensioners make active financial decisions about what product or suite of retirement products best suits their individual circumstances, and not just look out for the best annuity rates.