The Pension Income Choice Association are continuing their campaign to bring about reform of the annuity buying process. Tom McPhail, who is the PICA chairman says that his organisation has been looking at “behavioural finance” and hopes that this will help to bring about reforms from the government. At present although annuity providers have to provide information about the Open Market Option, many annuitants fail to compare providers and stick with the first offer from their incumbent provider. This results in many retirees missing out on a potentially higher retirement income, especially if they qualify for enhanced annuities.
The PICA would like to see the current system overhauled so that OMO would be made the ‘default’ for retirees. That way they could easily shop between providers to see which insurer had the best deal for them. Mr McPhail who has long been campaigning for change told the CityWire website ….‘I have had useful chats with ministers and will be doing some work on it over the next six months,’ said McPhail. ‘We are doing some work on behavioural economics and communication issues that make shopping around the default for rational human beings.’
He went on to suggest that there is evidence that even if people know they can get a better deal by shopping around, many will still take the first offer from their current provider. Part of the problem would appear to be the perceived complexity involved in shopping between providers. The PICA themselves in the past have advocated a ‘Pensions Passport” so that retirees could compare providers armed with the info needed for a provider to offer them an annuity quote.