A new survey has found that more than two thirds of pension experts back a change that would lead to a simple default option for those buying an annuity. The idea was backed by more than 65% of the attendees at the International Longevity Centre UK conference. The delegates were asked a number of straight forward questions relating to what they would like from their income in retirement. The suggestion for the default option was raised by Steve Groves who is the Chief Executive at retirement specialist Partnership. He argues that the current system for purchasing an annuity is “too intimidating” for those who were not using the services of a financial adviser. Mr Groves says that the current systems forces individual’s to answer… “….questions that they could not be expected to know the answer to without being a pensions anorak, and that intimidates people away from focusing on the things that really matter.” He added that removing the complexity of the system would increase the level of engagement. Mr Groves went on to suggest that a default annuity option which included a 3% escalation and a 50% joint-life option for those who were married would also encourage people to shop around more. Mr Groves argues that progress can be made if …”….we can get 90% of people getting a really good annuity, instead of 30% getting a perfect annuity.”
A default annuity option has been mooted before of course but is likely to be met with resistance from those who want to maintain the status quo. However Mr Groves’ point about questions that could only be answered by a ‘pensions anorak’ is a valid one as the industry is awash with Jargon that can only be deciphered by those who work within it. Pensions expert Steve Bee even went to the length of creating a whole website dedicated to explaining pension issues is a non-technical manner. Previous research from MGM Advantage has also shown a substantial lack of understanding of the annuity industry from the general public as more than 7 in 10 of those questioned did not fully understand what an annuities are, with more than a third only having a ‘vague idea’ what an annuity was. This considered, you can hardly expect the public to be able to comprehend the complex issues associated with annuities. In fact, combined with a lack of information and lethargy on the part of the individual you have a toxic mix which can and does prove disastrous for those wanting to achieve the maximum income in retirement. A default option of some kind, whether that be OMO or a half way house where certain elements are included by default (as above) is one of the solutions being put forward to help boost retirement incomes. Another idea is to make annuity purchases ‘automated’, a notion put forward by Joanne Segars from the National Association of Pension Funds. She remarked that because auto enrolment would increase the number of DC pensions savers in the future, the annuity purchasing processes needed to become automated where possible. She said [of the system]..”…how do we make some of that automatic? We spent the last decade or so working through the accumulation process and we are now going to need to spend more time on decumulation.”
