A total of 46% of people who had paid into either a company or personal pension know about the open market option (OMO) and that they would not fall under any obligation to buy their annuity from the same company that holds their pension fund, according to research by Skandia.
A survey of more than 800 people aged 50 to 66 and approaching retirement shows less than half of people approaching retirement who have paid into a defined contribution (DC) pension do not know about annuities and income drawdown.
The research follows the Government’s plans in the pre-budget report (PBR) last month to improve OMO uptake for annuities. However, Skandia says the need for advice at retirement goes beyond just looking at the OMO and should take all options into account.
In the PBR the Government said it would launch a web-based tool to help people choose the most appropriate annuity but Skandia believes the Government should expand this service to also make people aware of the alternatives to taking an annuity.
Nick Bladen, head of pensions and bonds marketing at Skandia, says: “Clearly income drawdown is not the most appropriate choice for everyone, but then neither is an annuity going to be most appropriate in all scenarios.
“Financial advisers have a duty to consider all options available to clients when making a recommendation. Shopping around for the best deal annuity is important, but that is going to be difficult to achieve if people’s awareness of the options in the first place is so low.
“The OMO itself is just one piece of the puzzle. The best advice is given when all options have been considered, and at retirement that includes looking at the alternatives to annuities that exist.”
The survey also shows just 39% of people who have paid into a defined contribution pension think annuities offer good value and 37% would prefer not to buy one at all.
Almost 60% of those who had paid into a money purchase scheme or a group personal or stakeholder pension run by their employer know the principle of using that scheme to build up a pension fund they could take income from after a certain age.
Almost 50% know they can do this by buying an annuity and 42% know about income drawdown as an alternative option.
Just over 85% of those who had paid into a personal pension know the principle of how pensions work, 66% know about annuities as an option but just 34% know about income drawdown as an option.
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