Pension providers need to act or face regulation

Pension providers need to improve levels of service to customers taking out annuities, with an emphasis on speeding up fund transfer times. They also need to look at how they explain annuity options to consumers who are approaching retirement as part of a drive to increase understanding of how best to secure an income in retirement, an influential panel of retirement income experts warn.

The Prudential Retirement Income Panel – made up of experts on retirement and pensions savings – has highlighted major issues in the annuities market which need to be addressed in order to improve service to consumers and intermediaries, and avoid unnecessary extra regulation.

The panel identified that greater effort has to be put into speeding up transfer times for pension funds being converted into annuities. The ABI Pension Maturities Statement of Good Practice states that “after payment of tax free cash where appropriate, pension funds should be sent to external Annuity providers within 14 days of selected retirement date.”

Many providers are falling far short of this as illustrated by Nick Flynn of Origen who stated: “Clients simply do not understand why it takes six weeks to get their pension. We write to clients and tell them it takes six to ten weeks and most of our complaints come because of that letter.”

Panel members recognised that there is commitment and enthusiasm among providers to change current practices, but Helen White, Assistant Director, Association of British Insurers warns: “Service standards are voluntary. We cannot force companies to adhere to these standards. If we don’t make significant changes voluntarily, the Government will in a few years impose changes.”

The Panel also discussed a continued lack of consumer education and agreed that there was a specific need to encourage consumers to learn how annuities work, and understand all of their options. Nick Flynn of Origen believes the problem with consumer understanding is fundamental: “People don’t see the difference between retirement vehicles and savings vehicles. They don’t understand why they have to buy an annuity.”

It was felt that one key to achieving better consumer awareness is the Open Market Option, where the focus should not be about the best annuity rate, but about securing the best retirement income for their needs, and indeed ensuring that consumers understand exactly what those needs are. Aston Goodey, Director of Retirement Income at Prudential stressed that: “With OMO we need to move away from it being about getting the best rate to getting the right solution to meet the clients’ needs.”

Hosting the panel, Gary Shaughnessy, Managing Director of Prudential Retail Life & Pensions said: “There is false expectation surrounding how long people expect they’ll live for and a severe lack of understanding about the impact that inflation will have on their retirement income, especially if they live longer. People are making decisions today, thinking about their current situation without considering what it might be in 10 or 15 years time. This issue needs to be addressed or we’ll find pensioners living longer on ever reducing incomes.”

Steve Hunt of Rockingham Retirement/Annuity Advisor reiterated the importance of making the right decision: “People are living for 20 or 30 years after retirement and going into irreversible contracts they cannot change.”

The panel further identified that there is a worrying lack of consumer engagement when it comes to choosing their income in retirement, which is not helped by the jargon providers have to use and by general apathy.

Billy Burrows of William Burrows Associates was keen to emphasise that: “It is not about selling products and just providing information. People need advice. The challenge is how we involve people. If people get involved they will understand.”

As well as seeking advice, Stuart Bayliss of Annuity Direct put forward that providers should help consumers by making more of an effort with accessible online tools to explain products. “We have really got to be more imaginative in how people use websites. There are risks that we have to tell people so they can make their own decisions.”