Fewer pension savers are taking the open market option (OMO) when purchasing a retirement income product, according to the Association of British Insurers (ABI).
ABI business data released today showed just 169,000 retirees decided to turn down the annuity offered by their pension provider in 2008, down from 170,000 in 2007 and representing just 37% of all annuity contracts. This is despite the total number of annuities purchased rising by 4.4% to 452,000.
Retirement income specialist, Rockingham Retirement, says the 'disappointing' data shows insurers aren't doing enough to make customers aware of the products available to them in retirement.
Steve Hunt, managing director of Rockingham Retirement, says UK pensioners are losing out on more than £1bn by not choosing the best retirement income product available to them.
"It's clear from these figures the message isn't getting through, and the insurance companies need to do more to promote the OMO," he says.
Rockingham says those approaching retirement can increase their income by more than 20% by shopping around compared with the default option offered by their pension provider.
The FSA requires pension providers to inform their customers of the OMO, but Hunt believes the option needs to be actively promoted to ensure pensioners are getting the best income available to them.
"Pensions giants are not giving best advice to hundreds of thousands of retired people who need income more than ever," he explains.
"It is eight years since the FSA ruled that pensions companies would be legally obliged to inform their pension fund holders of the OMO - but the evidence would suggest that huge numbers are simply not aware, as these ABI figures testify."
In response, the ABI says it is working hard to make customers aware of the OMO and ensure they receive the best income to suit their circumstances.
Jonathan French, the ABI's Assistant Director of Media Relations, said: "The ABI is committed to working with the annuity industry to ensure that customers get best value for money. This could mean buying via the OMO, but it could also mean taking up a guaranteed annuity rate from an existing provider or checking eligibility for an enhanced or impaired life annuity.
"It's unfortunate that Mr Hunt seems unaware of the work being done by the ABI and annuity providers to make the options people have at retirement clearer, including prominent promotion of the OMO, and how its use could give better value for money, on 'wake-up' letters
Contact: John Bakie, Tel: 020 7484 9805, e-mail: [email protected]IFAonline
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