Retirees who use the Open Market Option (OMO) when searching for a pension annuity could collectively earn a whopping £3.3bn in extra income by 2030. That’s the view of the Pensions Income Choice Association (PICA) who recently undertook some research into the matter. The survey collected information on the annuity buying process and one point which retirees identified as off-putting was the amount of jargon and paperwork involved in the process. The data also confirmed what many in the industry would expect to uncover – a lack of understanding on how the OMO impacts on retirement income. Those with smaller funds also believed that it wasn’t worth shopping around for an annuity unless you had a sizable pension fund of £50,000 and above.
Those who responded in the survey also commented on the idea put forward by PICA named in the ‘Optimising Value in Retirement report’. The report outlined a way to improve the pension buying process by focusing it on three easy steps outlined below…
- “Focus on the choices and decisions people face at retirement and the action they need to take.”
- “Production of a personalised statement containing sufficient information for people to use to obtain quotations.”
- “Short communication requiring the member to inform the company/trustees how the fund should be applied.”
source: IFAonline.co.uk
The feedback was very positive, with respondents concluding that reduced jargon and better clarity would be a real benefit to the current system. At the moment lack of awareness over the Open Market Option drives most annuitants to buy an annuity from their current provider, meaning many miss out on a potentially higher retirement income.
Steve Lowe from the PICA had this to say about his organisations research…. “…by adopting the new shopping around three step process customers could be accessing billions of pounds of additional retirement income and importantly getting access to a more appropriate range of retirement product solutions.” PICA now want to share these results with those discharged with legislating UK pension law so they can lobby for the introduction of a Pension Passport.
PICA should be praised for this research and the efforts they are making to get real reform of UK pension rules. Recent government reforms have brought about a series of overdue changes but missed the real issue for retirees – the scandalous amount of ‘unclaimed’ pension income which many miss out on every year through not utilizing the OMO.
