Spurred on by the threat of compulsion, the ABI has produced a new code, which goes some way to tackling the problem. However, like St Augustine, it smacks of “Lord make me chaste, but not yet”
But that was before the great pensions revolution, where we have moved from a largely defined benefit world to a defined contribution one. Buying an annuity is now the single most significant transaction many people will make. Getting it wrong could cost thousands of pounds over a retirement.
Government understands this, which is why it threatened the industry with some form of compulsory open market option, and understandably so. The state will pick up the bill if the least well-off in society get the rawest deal at retirement, as they currently do. Various figures fly around about the numbers of pension savers who accept an often atrocious annuity quote from their own company, out of a sense of misplaced loyalty. Whichever you believe, it is one hell of a lot.
Spurred on by the threat of compulsion, the ABI has produced a new code, which goes some way to tackling the problem.
However, like St Augustine, it smacks of “Lord make me chaste, but not yet.” There is much that is good about the new code. Policyholders must be made aware of the open market option, and insurers will no longer send their own application forms in the retirement packs.
But it will not come into force until next March, so consumers are vulnerable for another year, during which period more than 600,000 will retire. And it does not cover company trust-based schemes, where trustees seem woefully ignorant of their duties towards employees.
Within a decade we will start to see the first generations retiring en mass from occupational defined contribution schemes, yet there is no framework in place to guarantee they take any better decisions than those in personal pensions.
Knowing the pensions industry, a promise to flag up OMO may amount to little more than a leaflet or paragraph amid a forest of other bumph. Some say actual quotes from rival companies which undercut them should be included in the pack. I’d say pigs might fly. The latest research from KPMG found that only one in three of those questioned would pay for advice relating to an annuity and the most even these would pay was £50. Astonishing when set beside the myriad of advisory fees associated with property purchase.
Others say some sort of two-tier advice will be necessary in the brave new, supposedly commission-free world of the retail distribution review.
But first, the proponents argue, we need a pensions passport. If insurers hand you a document, akin to the credit card summary box, those with small pots can go on-line for their own DIY annuity.
Talk of second, or lower class services always set my alarm bells ringing. It means those who need most help get least.
Take a printer I was speaking to recently. He had acquired six pension policies during his working life, and when he was made redundant during his mid-50s he decided to cash them in.
So he went onto the internet, where, more by luck than judgment, he ended up in the hands of an adviser, who discovered three of his contracts had guaranteed annuities attached. If he had gone straight onto an execution-only site, these may well have been lost.
Nationwide has launched its annuity service, offering both full advisory and execution-only, claiming this a first step to a consumer-friendly high street service. But it has already acknowledged, the whole thing will have to be rethought again next year when RDR arrives. Others see technology as the answer, and I am much swayed by ideas of a personal service perhaps via a web-chat video link, if supported by a reliable pensions passport.
But how reliable would that passport be? It was not long after the introduction of summary boxes, before some of the banks found clever ways to calculate their APRs to make them look cheaper than they were.
Teresa Hunter is a freelance journalist