There are those that think an open season might bring fair play to the annuity market. Over the last twelve months or so a huge amount of industry debate, especially in the media, has been devoted to highlighting the open market option that is vailable to retirees, allowing them to shop around with their pension fund to find the best annuity rates.
However, we have only just started in terms of what really needs to be done. To date a combination of Government and Financial Services Authority (FSA) heavy prodding and adviser pressure has seen annuity providers move some way forward through the Association of British Insurer’s (ABI’s) Options initiative to improve pension fund transfer times, although take-up by some has been pretty slow. Fortunately, the ABI is working with HM Revenue & Customs (HMRC) in an attempt to reduce the current bureaucracy involved in the transfer process which will hopefully help.
But much more concerted effort is required. To start with, the target for Options of reducing transfer times must carry on and continue to fall. Recent ABI figures show there to be a slight drop in the number of retirees using their open market option to check out annuity quotes in 2008 compared with the previous year despite a rise in annuity purchases.
The providers which are not yet involved in the Options campaign should have to explain their delay to the FSA, and the debate must continue regarding single-tie deals for annuities that many providers have set up, which leading pension advisers have warned often offer bad value to retirees and damage the progress that has been made on the open market option.
As well as demands for faster transfer times and better service from annuity providers, the industry needs to think about the innovation and reforms that are required to the advice system to support a big increase in the use of the open market option, and, there is still an issue in respect of smaller pension pots, in that it may not make economic sense from the point of view of either the adviser or client for advice to be given, although a number of companies have come up with some potential solutions. The FSA’s annuity tables on their website do help, but not enough.
Living Time’s Offer More Options (OMO) campaign, first launched last summer, does touch on many of the right areas. They call for a reform of the advice system to promote greater knowledge of the various retirement options and better engagement with retirees to give them a greater understanding of these options.
There is absolutely no doubt the at-retirement market will be a huge growth area for many advisers in the future, and it is vital that the right steps are taken sooner rather than later to ensure clients are offered the best service possible.
