Tom McPhail from Hargreaves Lansdown says that having knowledge of using the open market option is more important than the restoration of the link between average earnings and pensions. This link, which was abolished in the 1980′s, has pledged to be re introduced under both the Conservatives and the Liberal Democrats. Given that both parties look set to govern in some form of coalition, there is a strong possibility that legislation could be passed on this matter in the next Parliament.
However, Mr McPhail who also happens to be the current chair of the Pensions Income Choice Association, says that instead of “point-scoring over the earnings link“, politicians should really be trying to promote the open market option more vehemently. He noted that shopping around for your pension was likely to yield much greater gains than the restoration of the average earnings link. Mr McPhail is also in favour of the OMO annuity being the default choice for annuitants. Currently annuitants are not forced shop around for the best deal, and many tend to take the first offer put on the table from their current pension provider. More often than not, this is not the best deal on the market but once the contract has been agreed, it cannot be amended. This means that retirees in the UK are missing out on thousands of pounds of potential income. In fact in 2009, ABI data reported that 63% of pensioners were not opting for the OMO when buying a retirement income product. This meant that there was £7bn worth income effectively “unclaimed”.
In addition to making OMO the default option, McPhail is also in favour of the appointment of a ‘Minister for Savings’ who would sit in cabinet to promote savings and pensions. He said the politicians like to speak about headline grabbing polices such as free eye tests when really they should be focussing on encouraging people to save.
From the pension industry, ABI chief Maggie Craig responded by saying that …”…we are talking to the DWP about getting good quality communications on pensions. The window of opportunity is there to get out and convince people saving is good for them, using auto-enrolment as a spring board.”
