Annuity Rates

Government asks the ABI why so few use OMO

Peter — Thu, 02 Sep 2010 07:29:14 +0000

Amidst the reality of dismal annuity rates and increasing financial pressures on retirees, the government has asked the ABI why so many pensioners are failing to get the best deal on their annuity by using the OMO. Mark Hoban who is the financial secretary to the Treasury is rumoured to have asked the Association of British Insurers (ABI) why so few annuitants are using the open market option (OMO) to compare annuity quotes.

This process is essential in securing the best annuity quote. However despite extensive efforts by insurers to improve the information given the would-be annuitants, only 40% of those who bought an annuity this year used the OMO. This means that many of these retirees will miss out on a potentially higher retirement income as they have taken the first offer given to them from their current pension provider.

In a statement to The Herald newspaper the ABI said that… “…the ABI and its members are committed to making the process of shopping round for an annuity as straightforward as possible.” Some have questioned why the ABI would allow this situation to continue given the fact that it can have such an adverse effect on a retiree’s income. David Trenner from Intelligent Pensions, said that…”…the ABI is a trade body so it can hardly turn round to the likes of companies such as Scottish Widows or Friends Provident and tell them what to do.” Some have argued that the only way to enforce use of the open market option would be to make it the default for those looking for an annuity, in essence this would mean that savers would be compelled to seek alternative annuity quotes.

Related posts brought to you by Yet Another Related Posts Plugin.

Retirees could lose over 50% of their income by not using the Open Market Option (OMO)

Peter — Thu, 26 Aug 2010 13:57:50 +0000

An industry expert has warned that retirees could lose over half their retirement income by not shopping around when looking for a pension annuity. Under the present system, retirees are sent a ‘wake-up’ pack around six months before their stated retirement date which outlines the various options for their retirement finances. Included in this is the advice that they are able to shop around between providers for an annuity. However, this can be time consuming, with many retirees choosing not to go through this process as they are seemingly unaware of it’s importance. Most annuitants stick with the first offer given from their current provider, which is most cases is not the best deal for them.

Laith Khalaf from retirement specialists Hargreaves Lansdown noted the difference in income that can be gained by using the Open Market Option. He said that…“…pensioners could net themselves thousands of extra pounds simply by shopping around for an annuity. “Typically the difference between best and worst rates is around 20 per cent, but we have had clients tell us that the income we arranged for them was up to 60 per cent higher than what their pension provider had offered. That income is then paid year in year out for life.”

The government has now asked pension annuity providers why so many of their customers are failing to compare rates between rival providers. Another industry expert, Gemma Goodman from The Annuity Bureau said that many people live with ’second rate’ pensions as they did not shop around for an annuity.

Related posts brought to you by Yet Another Related Posts Plugin.

Why you must ensure you get the best annuity rates

Peter — Mon, 23 Aug 2010 16:47:27 +0000

With rates predicted to fall for the rest of 2010, now it is more important than ever that you get the best annuity rates. This can only be done by shopping around between annuity providers for the best deal, known as using the Open Market Option (OMO). Staggeringly, most people do not shop around, which means most people are not offered the best rates available. This scandalous situation is allowed to continue as those who are looking for an annuity are more often than not unaware that they must shop around to get the best rates.

So while we are used to comparing other financial products such as mortgages, loans, credit cards etc…because of the lack of understanding and complexities associated with an annuity purchase, most retirees end up sticking with the first offer from their incumbent pension provider. In many instances this suits the provider just fine as they do not have to asses the annuitant for for possible enhancements which would mean paying out a higher rate.

The P.I.C.A have suggested that this situation could be improved if there was a ‘pension passport‘ system where some brief details of each potential annuitant could be documented and then that person could more easily shop between providers. However, the real reforms many in the annuity industry crave have yet to surface from Whitehall, with the government instead focusing on making the pension rules more flexible by abolishing the annuity age limit. This means that we are all still relying on the initiative of each individual to be savvy enough to compare rival annuity providers. Until the OMO is made the default position for all annuitants, thousands of pounds worth of potential retirement income will go unclaimed each year.

Related posts brought to you by Yet Another Related Posts Plugin.

Increase in sales of variable annuities

Peter — Sat, 21 Aug 2010 10:16:53 +0000

Over the past 12 months, sales of variable annuities have increased by over a third – a sign that pensioners are being forced to take more risks with their finance to obtain their desired standard of living. Returns from standard annuities have fallen by over 20% over the last ten years which has made them increasingly less attractive to savers. In the first six months of 2010, the value of the sales in variable annuities rose to £445m which represents an increase of 34% on the same period last year.

Variable annuities are linked to the performance of investments, which allow the annuitant to potentially benefit from a higher annual income should these investments perform well. The downside is if the investments perform badly the annuitant could lose money. There is also no guaranteed income for life that is applicable when you opt for a conventional annuity. Instead the income is only guaranteed for a fixed period, typically ten years. This does mean a higher initial income but if rates fall throughout the duration of this period then annuitant’s income will fall as a consequence.

Billy Mackay from SIPPS company AJ Bell says that… “…variable annuities are often promoted on the back of their ability to provide access to a guaranteed income whilst also providing the potential for a future increase in income alongside control of the remaining capital on death. It is important that investors look to explore and understand the nature of the variable annuity and cost of the guarantee or promise. The vehicles used to back or provide for the benefit promise or guarantee can be complex and expensive.”

Variable annuities are in general most suited to those who have another form of income, as they can incur the risk of a falling income because they have another source of revenue. However, because of poor yield returns from government bonds, rising life expectancy and rising taxes, many annuitants have had to take on this risk because they simply cannot afford to live on the income from standard or conventional annuities.

Related posts brought to you by Yet Another Related Posts Plugin.

Annuity rates to fall for the rest of 2010

Peter — Thu, 19 Aug 2010 21:40:21 +0000

annuity rates are falling in spite of some predictions that they would rise in the second half of 2010. This was based on the assumption that government interest rates on borrowing would increase after the June emergency budget. However, it looks like the reverse may have happened, and that there may not be any rise in rates until well into 2011.

Retirement Partnership boss Steve Lewis noted that the continuing rise in life expectancy would create downward pressure on rates. He also highlighted the changes to accountancy rules which would impact on how much insurers can offer. He said that…“…a second problem for the insurance companies when setting annuity rates is that new accounting rules are being introduced for the whole of Europe’s insurance industry. This means that providing annuities will cost the insurance companies more and they will therefore pay less.”

So with rates predicted not to rise, coupled with the introduction of new pension rules which remove the compulsion to buy an annuity, the volume of annuity sales in the UK could fall as a direct consequence.

Related posts brought to you by Yet Another Related Posts Plugin.

Fair Investment Company launch new annuity service

Peter — Sun, 15 Aug 2010 21:20:11 +0000

Fair Investment Company have launched a new pension annuity service which will aim to help people maximise their retirement income. George Ladds outlined the two-pronged approach which the service has adopted. He said… “…our new annuities service offers two retirement fund solutions – the first is an open market annuity service covering impaired life and standard annuities through The Annuity Team, the second, a pension drawdown service through the Fair Investment Advisory Service.”

So whether you are suited to drawdown or an annuity, this new service should help you find the best deal in retirement. With rates being at an historic low, it is even more important than ever that people shop around for an annuity. Not doing so can and does cost many retirees in terms of lost potential income. The amount of money you may lose out on varies, but for those who have serious illnesses or lifestyle choices that impact on life expectancy, this amount can be very substantive indeed.

Despite recent reforms in the rules governing the pension procurement process, the open market option is not the default option, as many industry observers would like.

Related posts brought to you by Yet Another Related Posts Plugin.

Just Retirement annuity sales up 36%

Peter — Mon, 09 Aug 2010 21:12:56 +0000

Just Retirement have this week announced that they have generated bumper sales in the six months to June this year, with over £1 billion in new business. This represents a rise of around one third from last year when they generated £753.7m. Despite doing very well in terms of equity release sales, the company’s most notable achievement was the continuing success of its annuity sales which rose to £804.6m in the six months to June this year, up 36% from £590.8m.

Just Retirement CEO Rodney Cook said there were ’challenges and opportunities’ in the year ahead…”…we will continue to use this strategy while keenly monitoring events in the fixed interest (gilt and corporate bond) investment market. The business has actively engaged with the IFA market in terms of the impact of RDR. Just Retirement has devoted considerable resource to its compliance with Solvency II. While it is too early to comment in detail, our preparations continue to progress positively.”

Just Retirements financial results should help boost confidence in the industry which is about to embrace some wide reaching changes with regard to the annuity buying process. Despite some concerns that the new rules may mean less people buying an annuity, these results indicate that for now they are proving as popular as ever.

Related posts brought to you by Yet Another Related Posts Plugin.

Aviva post bumper profits helped by annuity sales

Peter — Sun, 08 Aug 2010 19:37:02 +0000

UK insurer and pension annuity provider Aviva has announced an increase is company profits, assisted by an increase in pension transactions. Pre-tax profits soared to £2.1bn before tax – a rise of 21% from 12 months ago. The company has moved away from investments and focused more on pensions and life business which has seen growth in recent times. Long-term savings products (including annuities) are now worth over £20bn, which is an increase of 4% over the last six months.

Commenting on the positive results, Toby Strauss (who heads up Aviva’s Life & Pensions business) said that…”…pensions and annuities are more resilient in times of economic difficulty, so we have benefited from shifting our focus in that direction.” The company has also been helped from UK businesses who have moved away from final salary schemes (defined benefit) and instead turned to defined contribution ones.

The marketing campaign…’Get the Aviva deal” also appears to have contributed to the increase in company revenue. Strauss says that…’…one of our strengths is our brand and we’ve felt the benefits of being able to put a significant amount of money into promoting it.’

Related posts brought to you by Yet Another Related Posts Plugin.

Will the new pension rules mean better annuity rates?

Peter — Sat, 07 Aug 2010 15:54:51 +0000

New pension rules which will allow wealthier retirees to exert more control over how their pension fund is invested should in theory have the affect of pushing up annuity rates, according to one industry journalist. Writing in CityWire.co.uk, Lorna Bourke argues that because wealthier retirees will now not be forced to buy an annuity and instead may opt for income drawdown, rates should improve for everyone else who does buy an annuity. Because richer retirees tend to live longer, the amount insurers have to payout cumulatively should be lower as there will be less of these ‘wealthy annuitants’ to pay income to…

Bourke says that….”if most wealthy people are removed from the annuity pool, the average life expectancy of those still obliged to buy an annuity – those on low incomes – should fall and annuity rates should rise.” In theory this will counter-act the current problem facing annuitants of increasing lifetime expectancy, which has driven down rates. Whether annuity providers will reward new annuitants with better rates as a consequence of these changes is not yet known. However Bourke is not confident the savings will be passed on as she says that…”….Life companies are always trying to wriggle out of giving customers a fair deal.”

Most commercial financial organisations will not pay out more money unless they have to, so it is hardly surprising that insurers are not bending over backwards to give annuitants a better deal on their annuity unless they ask for it.

Related posts brought to you by Yet Another Related Posts Plugin.

Boost your annuity with the Open Market Option (OMO)

Peter — Wed, 04 Aug 2010 21:30:36 +0000

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.

Related posts brought to you by Yet Another Related Posts Plugin.