We're becoming used to signs in supermarkets comparing their prices their competitors. In the "store wars" it's essential to reassure your customers that they're receiving good value, and a good way is to demonstrate that your prices are cheaper than those elsewhere.
Of course, price comparisons we see in supermarkets always show the company undercutting its competitors, or at least demonstrating pricing parity. We would be very surprised if we saw a sign that said “You can get better value if you go elsewhere.” But that’s what’s being suggested for annuities.
The Treasury and the Department for Work & Pensions are currently in the middle of a review of the open market option (OMO) for annuities. There’s been concern for some years that many people don’t exercise the OMO, even if it could result in a significantly higher pension. Efforts have been made to ensure that consumers are aware of their options. It’s now required under FSA guidelines backed up by an industry-wide best practice guide. However, there’s still a feeling that many people are sticking with their existing providers when they could be moving.
One suggestion that’s floated around for a while - and is likely to resurface - is that all retirement quotes should include not only the annuity on offer from the current provider but also the best rate available in the market. Effectively we’d be asked to advertise competitors’ products.
A few seconds’ thought reveals the practical difficulties behind this suggestion. Annuity rates vary from day to day, and ensuring that accurate, up-to-date quotations were issued could be disproportionate to the consumer benefit. In addition, the consumer would presumably obtain an application form and disclosure materials from the new provider, meaning that significant effort was still needed to make the transfer.
But it’s the principle that really worries me. You wouldn’t expect to see signs in Sainsbury’s saying “You can buy this cheaper at Tesco”, and nor would financial advisers be happy to advertise the costs of similar services offered by competitors.
Consumers already have a straightforward way to obtaining the best deal for them. Whole-of-market advisers can ensure they have the form of annuity (or indeed drawdown) what’s most suitable and that they can take advantage of any special terms such as impaired life annuities, as well as finding the best rate available. That’s much more likely to lead to happy consumers.
If I want to find the best deal for my groceries I can shop around, on foot or on the web. Consumers can similarly shop around for annuities, or an adviser will happily do that for them, and much more beside. Let’s give them credit for being able to make their own decisions, and not introduce requirements that wouldn’t be contemplated in any other industry.
Ian Naismith is pensions market director at Scottish Widows.
The views are those of the author and not those of the company he represents.IFAonline
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