The pension regulator has found that those approaching retirement who are paying into an occupational pension scheme may not be getting the right information about how to re invest their money. It has been found that in some occupational schemes, retirees are not being told how to reinvest their fund to create an income (such as a pension annuity) or not being told that they can shop around and use the open market option to find the best annuity rates on the market.
The regulator conducted a review that focused on defined contribution schemes, whereby the payout that the retiree receives is not at a guaranteed level but is subject to the performance of the investments funds. There is around 2 and a half million people in these schemes, with more set to join in 2012. For those in a scheme already, there is a great deal more choice on offer when it comes to choosing where to invest the money. Much more choice compared to someone who is in a final salary scheme for example. The regulator looked at 97 different examples of the literature relating to these schemes and found that nearly a third had broken the rules governing communication, with 57% having “room for improvement”. The biggest issue was that those who administer these schemes are obliged to contact retirees sixth months before their stated retirement date. Nearly a quarter (24%) however were contacting them after this date.
The report also emphasised the need for people to shop around for an annuity, as the open market option could mean them receiving a substantially higher income in retirement. People are encouraged to see which provider (s) can offer them a higher income from their retirement fund (pension pot). Despite nearly 100% of the schemes offering the open market option, only 23% of those enrolled took the option, which is why the regulator is so concerned that the literature be improved to encourage more to seek alternative options.
June Mulroy who is on the senior management team of the regulator said that the open market option could make “a significant difference” to retirement incomes. She acknowledged that the recession has impacted upon the value of some people’s savings, but that then meant that shopping around for the right deal was even more on an imperative.
