The Question - Should all annuitants, both in trust- and contract-based schemes, be asked key suitability questions before being able to access their annuity?
Stuart Bayliss, director, Annuity Exchange
Undoubtedly. And the better-resourced intermediaries are already doing so. They are using portals that ask which type of annuity people want. That is the easier part to achieve. What is more difficult in the workplace is explaining what shape of at-retirement product people should go for, and the key question of when employees take the decision to annuitise is outside of the process as currently offered.
There is a journey in improving the experience of those at retirement. Some EBCs’ systems now ask the health question, although they then ask customers to give them a call to discuss the matter over the phone. This part of the process is generally not available online at present. But that should come with time.
But there are lots of trustees who are still not even offering staff the open market option when they come to retire, or checking whether people have impaired lives. Ten years ago I was warning them that they are putting themselves at risk by doing this but there are still many who have not changed their processes.
Kevin Wesbroom, principal at Hewitt Associates
Yes. And the best systems do flag up issues such as health conditions that would entitle scheme members to an impaired life annuity, and sends the member in the direction of finding more about getting the product that is suitable for them. But this process is not universal.
I think this issue of suitability in the annuitisation process is a ticking time bomb. All it takes is for someone with a decent slug of money in an occupational pension scheme to be a bit persistent and they could succeed in a claim against trustees. For someone with a F250,000 pot that could add up to quite a lot of money.
If the message is that 40 per cent of people can qualify for an impaired life annuity, the process should reflect that. And if you are sloppy in the way you deliver annuities it could be putting you at financial risk.
But regardless of however often you point this out, there are some trustees who do not even go as far as giving people the open market option.
Stephen Lowe, marketing and product director, Living Time
Yes. We think this is a time bomb waiting to explode. Trustees need to look beyond their legal requirements. I think employee benefits consultants have invested more of their attention in scheme design in the accumulation stage and much less time has been spent in dealing with how a retirement income is secured.
The level of assets coming through this channel is going to double in the next four years and there is a great opportunity here for employee benefits consultants to raise money out of this themselves by helping their members to the right solutions. I am on the board of the Pensions Income Choice Association and our view is that every single member should receive an option report before they retire. The second stage is to get a pensions passport, which gives them the information to go around the market to see what the various options available in the market could do for them. And only then, after they have considered all the options, should they be at the point of going back to the market to make a purchasing decision.
The Pensions Regulator’s recent report in this gave the industry a C- minus, and nobody should be thinking they have got it cracked already.