Consumers have had the right to shop around for better deals since the Open Market Option was introduced, but a lack of legislation has meant that providers can bury the information within the small print of a lengthy and confusing document – if they mention it at all.
Research by the FCA has discovered 60% of people stay with their existing provider when purchasing an annuity, and 80% of those could have secured a higher income on the open market. That increased to a huge 91% of those who took an enhanced annuity.
However, a number of factors could explain why so many people stay with their existing provider: it is easier to accept the quote than to explore the market, some firms charge to transfer funds elsewhere, and there is no obligation for firms to explain the Open Market Option in simple language.
Jamie Smith-Thompson, managing director at Portal Financial, says:
“Although it is excellent news that consumers will be informed of their right to shop around, my concern is how the information will be delivered. The ABI has been encouraging providers to explain the Open Market Option in wake-up packs for years. However, a lack of legislation has allowed providers to bury it within the packs rather than making it clear and prominent. If the new ruling does not state how the information is to be delivered then we could just see more of the same.
“Purchasing an annuity is usually a decision that is only made once, so it is essential that the consumer makes the right choice. If Pension Wise will give details on the Open Market Option or the stark difference in income that different annuities can provide, perhaps providers should direct consumers to the government guidance service as well as regulated advice so that they at least understand the importance of shopping around.”
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