Having a small pension pot can cause apprehension amongst retirees as they are unsure as to what is the best course of action. Small pension pots are generally less lucrative for insurers and providers of pension annuities. This can in cases lead to unfairness when it comes to how the retiree is dealt with from advisers. Fair treatment however is something that is stipulated in the FSA’s retail regulatory agenda which states that…‘…a firm must pay due regard to the interests of its customers and treat them fairly’.
Given this fact, it is surprising that some advisers cannot or will not service enquiries from people with pension pots below £30,000. Moreover, it is thought that 8/10 pension pots maybe below this figure according to ABI stats. For the annuitant, the best option is to shop around between providers using the open market option. However, as an adviser this takes time, with the added complexities of probing the person about possible ill health or building in escalations in some instances. Some have estimated that of the 300,000 people who took retirement in 2009 (with pots of less than £30,000), collectively they will miss out on incomes of over £300m.
For IFA’s, the dilemma is that advising someone with a small pension pot means they will more often than not make a loss on the deal.
