Aviva - the UK's largest insurer - is proposing a series of reforms to the retirement industry with the publication of the report ‘Rethinking Retirement in the UK'.
The report sets out a series of measures Aviva believes are necessary to address the issues facing the retirement market today, encouraging reform, so that the industry can better serve the needs of tomorrow's retirees. Aviva proposes the following:
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Motivating retirees to shop around for the best annuity rates (open market option)
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Creating an annuity market fit for the future
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Addressing customers needs
The open market option
Most people do not know how to get the best annuity for their circumstances. This oversight could be costing them literally thousands of pounds of lost income in retirement, with two thirds of consumers [i] buying the annuity offered by their pension provider rather than a potentially better value product. The mechanism to help customers access the best annuity is in place via the open market option, but reform is needed to ensure consumers feel confident, supported and engaged throughout the whole process.
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Ensure all annuity providers publish annuity rates: UK annuity providers are not currently required to publish the annuity rates they offer to their customers when they reach pension age. Many companies already do so, especially those that are actively marketing their annuity products to new, or ‘external', customers, but there is still a significant minority allowing no comparisons. Aviva wants the publication of annuity rates to be made compulsory, no matter whether the provider is offering annuities to the whole, ‘open' market, or takes a ‘closed' approach by only serving the customers that have saved for a pension with them. Aviva also proposes that examples of the best market rates are highlighted to soon-to-be retirees when the annuity they are being offered by their pension company is 10% less than the best rates available in the market for the same type of product.
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Inclusion of medical questionnaires in maturity packs: One of the most noticeable changes in the retirement market over the past few years has been the rise in the number of enhanced or impaired life annuities. Aviva proposes that basic medical questions are included in all customers' pension maturity packs to ensure those who qualify for an enhanced or impaired life annuity are more easily identified by the industry so firms can automatically offer them a tailored annuity.
Creating an annuity market fit for the future
There has been a dramatic change in UK demographics in recent years, with retirees living longer and the way in which they have built up their pension savings differing to previous generations.
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Reducing the costs of switching providers: When the FSA's Retail Distribution Review is implemented in 2012, the way customers access advice and guidance about their annuity is likely to split into two broad sections, advice and non-advice. Aviva believes customers need to be clear on what the right advice or guidance model is for them, based both on what they can afford and what level of service they want and are willing to pay for. In addition, Aviva believes that non-advised annuity sales should be subject to the same cost transparency rules as advised sales.
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Streamlining customers' retirement savings: As switching jobs every few years is now the norm for most, people are increasingly contributing to several private pension schemes during their working lives. Aviva research [ii] suggests that one in three workers have five jobs throughout their lifetime. Aviva therefore believes legislation should be introduced to allow the automatic transfer of small auto-enrolled pension pots, so savings pots follow members when they move jobs.
Addressing customers needs
People who access the level of information, support and guidance they need when they come to choose an annuity are more likely to choose the right annuity for them.
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Helping customers choose an appropriate level of guidance and advice: Aviva believes it should be as simple as possible for every customer to choose the level of support they need when making financial decisions about their retirement. To bridge the gap between non-advised, direct purchases, and full independent advice, Aviva believes the industry and regulator should press ahead in developing ‘simplified advice'. We also suggest a new form of adviser ‘badge' is created and promoted to customers so they know that if they talk to a ‘retirement adviser' they will be able to create a plan that addresses all their financial needs.
Clive Bolton, ‘at retirement' director at Aviva, said: "The current retirement industry is no longer serving customers as well as it could, conceived in an era when people's pensions were simpler and their life expectancy lower. Wide sweeping social and economic factors are changing the retirement landscape and in response to these trends the Government is introducing radical changes to the state pension system and retirement rules. However, the retirement industry must play its part in rethinking its retirement offerings, providing timely and easily understandable advice and information. Consumers face a different landscape to their predecessors and we must take practical steps to help maximise their income and make the choices that are right for them".
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