According to an article in today’s Daily Mail, the Pension Income Choice Association (PICA) have called for a number of changes to the system by which retirees choose an annuity. As anyone from inside the industry will know, only around 40% of those looking for a pension annuity actually bother to compare rates from other pension providers. This results in thousands of retirees missing out on potential income by not using the open market option (OMO). As we know, most people do not shop around for an annuity as they are blissfully unaware that this is essential to get the best rates.
Some improvements have been made to the information that those approaching retirement receive, the so-called ‘wake-up’ packs. However, according to the PICA chairman and eminent annuity expert Tom McPail from Hargreaves Lansdown, these packs are failing to provide retirees with enough information about their options. He is quoted as stating that they are “designed not to be read“. Whatever your opinion on these packs one thing is clear, they are failing in terms of the number of people who compare annuity providers.
So as well as improving these ‘wake-up’ packs, the PICA have called for a new type of ‘pension passport’ to be issued to retirees from their incumbent provider. This would outline the relevant personal and financial data about an individual and would ask them their preferential financial retirement option, such as which type of annuity they prefer. It would also have a section about past or present medical conditions, which are essential to declare if you want to be eligible for enhanced rates. Once this passport has been completed, the annuitant could then more easily shop between providers, armed with a broad outline of their financial position, their preferential option and a brief medical history.
A new Pensions Bill is due to pass through Parliament next year which many will be observing to see how many of these annuity reforms are included.
