One of the biggest risks a defined contribution member faces is choosing the right way to take their retirement income.
Advice is invaluable. But often people can’t afford the advice, and it doesn’t make financial sense for the adviser to offer their services.
The FSA over the last few months has been taking a closer look at open market options, hard on the heels of the Treasury’s review last year.
The Treasury’s work concluded not enough people were taking an open market option. But I think that misses the point. It is not the number of people actually taking an open market option that matters.
It’s the number of people considering an open market option. In a competitive market it may not make financial sense to move from the third best provider to the top provider.
One of the Treasury’s recommendations was for The Pensions Advisory Service to devise an online annuity planner.
This launched at the beginning of May. I absolutely, unquestioningly support any effort to help people choose the right annuity from the right provider. But I wonder if this new feature really hits the mark.
For a start – it isn’t the first website to come up on google when searching for ‘annuities’. There is a vast array of information and gadgets already out there for the consumer who wants to take an annuity decision.
To access TPAS’s online tool you have to know TPAS exists in the first place, and many people won’t.
Second, I found it very comprehensive. It covered all the scenarios it should do. But even I as a ‘self-confessed pension nut’turned off before I got to the end of the quote.
Partly because of the language. All of us in the pensions industry have a mountain to climb to start using phrases and words that make pensions appealing.
I came to the conclusion that although TPAS’s annuity planner would prove helpful to some in starting to think about their pension options, it was no replacement for advice.
A lot of people would struggle to extract the right information from their documents to put into the planner, even though it does a sterling job at trying to explain jargon.
The FSA should now be grasping the annuity thorn. The big question is how do we make sure people receive the right type of advice on retirement, and how do we make it profitable for advisers to give it?
That’s the real challenge ahead.
Rachel Vahey is head of pensions development at AEGON Scottish Equitable
The views expressed in this article are those of its author and do not necessarily represent those of the company he represents, IFAonline or any other Incisive Media affiliated organisation.IFAonline
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