OMO is no use without advice to shape retirement choices

  

The Association of British Insurer’s (ABI) new retirement choices code of conduct was introduced on 1 March 2013, continuing the work of increasing the number of people who shop around for annuities as they reach retirement. However, searching the open market for the best rate is only relevant after the most appropriate shape and type of annuity has been chosen.

With the growing competition for business from non-advised and execution-only offerings, it is crucial advisers define and position their services correctly. They may want to set a minimum pension pot size they will advise on or pass on small cases to another firm.

Shopping around is not simply about finding the best annuity rate..

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Budget 13: Govt commissions fundamental drawdown review

The Government is considering changing investment rules to allow pension schemes to invest in unused space in commercial properties which may be converted for residential use.

If the Government went ahead with the change it would mean pension schemes would be able to invest directly in residential property for the first time.

Have a look at the full article from Money Marketing.

Too early to tell whether RDR has worked

Martin Wheatley, chief executive designate of new regulator the Financial Conduct Authority (FCA), has claimed it is 'too early to tell' whether the retail distribution review (RDR) can be judged a success.

Wheatley added that huge fines on banks do little to improve the behaviour of their staff, saying it would not matter if they were doubled or tripled

To read the full article from the New Model Adviser, click here.

FSA mandates inflation-adjusted projections for pensions

Providers will be required to show customers the impact inflation could have on investment returns despite concerns the move could lead to a drop in pension sales.

The new rule, which will apply to generic and personalised pension illustrations for both personal and stakeholder schemes from April 2014, is being introduced by the FSA after research conducted by the regulator suggested customers found this approach easier to understand.

The FSA says several respondents to the consultation raised concerns pension sales could suffer as a result because they would appear to be worse value than products where illustrations are based on nominal returns.

The regulator will attempt to mitigate this concern by introducing a rule requiring companies to publish a statement about the effect of price inflation on other savings and investment products.

Drawdown providers will not be required to publish inflation-adjusted projections, although the FSA hints it will investigate whether this should happen in the future.

You can read the full article from Money Marketing here.

'Force annuity firms to treat all customers equally'

Annuity providers should be forced to offer existing customers the same rates as those given to new customers, a leading insurer has said. 

Aviva called on the City regulator to force all pension providers to offer the same annuity rates to "internal" and "external" customers.

Internal customers are annuity buyers who took out their pensions savings product with the same insurer; external customers saved with a different company before using their pension pot to buy an annuity elsewhere. Those who do shop around are said in industry jargon to be exercising the "open market option".

To read the full article from the Telegraph, open this link.

Shopping around - the Open Market Option

The Association of British Insurers (ABI) introduced a new retirement choices code of conduct from 1 March 2013 which will help people who are approaching retirement. So what is the relevance of this code and what does it mean to MGM Advantage?

When people reach retirement and want to turn their pension savings into a retirement income they don’t need to stay with the provider with whom they have built up their pension. Instead, they may want to buy from another provider who offers better rates or a different type of retirement income product.

There has long been a requirement for all providers to tell people about this option to shop around for the best deal (known as the open market option or OMO). But, unfortunately, some providers have been less than clear, sometimes ‘hiding’ the OMO information within their retirement packs, which they are required to send out approximately 6 months and 10 weeks before retirement.

This is clearly illustrated by the fact that more than half of retirees simply buy their annuity from the holding provider, with many losing thousands of pounds each year as a result. This consumer detriment has been the focus of much pressure over the last few years – from media, Government, and organisations such as the Pension Income Choice Association (PICA) of which MGM Advantage is a founder member.

The ABI code is an attempt by providers to encourage more people to shop around for the best deal. The code requires providers to take a number of steps including clearly highlighting the ability to shop around. The code also means providers can’t include an application form or ‘tick here and return’ option within the retirement packs, which forces customers to take some action. Both through the retirement packs, and when approached by a customer about their retirement options, a provider must:

·       Explain the benefits of shopping around and that other providers might offer a higher level of retirement income;

·        Highlight that the provider might not offer the annuity options or product that best meets the customer’s needs;

·        Explain to the customer how to shop around and encourage the customer to seek further advice and/or information about this;

·        Ask various questions (about inflation, any partner or dependants, medical/lifestyle conditions) and highlight the risks of any answers. For example if someone says they are married but asks for a single life annuity the provider must highlight the risk this creates.

In addition providers are required to start communicating to customers between two and five years before their selected retirement age, which will hopefully encourage people to start considering their options at an earlier age.

MGM’s project to make the required changes to our customer retirement process was implemented on time, so our customers in heritage contracts such as personal pensions, stakeholder pensions and occupational schemes will receive retirement packs which meet the ABI’s new requirements.

In a wider context, these, and other related, changes mean more people approaching retirement will shop around for the best solution to meet their retirement needs. This means more people will consider our enhanced annuity and investment-linked annuity contracts. For example, where people shop around more people buy an enhanced annuity than a standard annuity.  However, where they stay with the provider with which they built up their retirement benefits only 4% buy an enhanced annuity. So if more people shop around, the enhanced annuity market will grow further and faster - it is already growing as more of the baby boom generation reach retirement, and more people have savings in defined contribution pensions and so need to turn those pots into a retirement income.

 

UK retirement vs the best in the world

Do our counterparts in other countries get a better deal on annuities – or do they have other products that provide a bigger income in retirement?

 












The Daily Telegraph investigates how other nations deal with the problem of converting pension savings into a regular income, and how their approaches compare with the British system.