“Buying a Retirement Income” from an RIP

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Well done NEST– “Buying a Retirement Income”-that’s what an annuity does…. so at the expense of a couple of words we do now have an alternative to “annuity purchase”.

I’m sure the panelled annuitants or Retirement Income Providers (hereafter known as RIPs) are feeling pretty comfortable about life this morning.

The chances of getting a customer from NEST in the immediate future is slim to non-existent but for Reliance Mutual (the smoker’s friend), Partnership and Just Retirement (coffin-dodgers r us) and L&G and Canada Life who will be insuring the longevity of the immortals, this is still a happy day!

As part of its £360m set-up, NEST has been working out how to get us to make sensible choices at retirement and has concluded that a limited panel of providers two offering impaired life annuities, two conventional annuities and one specialising in smokers, it will pretty well cover the market.

It appears that a condition of entry is that all RIPs need to take DC pots as low as £1500 which begs the question – who is subsidising this – the insurer or the other annuitants? My guess is that for the moment – NEST having no annuities to broke – this lot can bask in the reflective glory while the pack which includes some big names like Aviva, Prudential, Zurich and Friends Life gnash their teeth.

People who want to explore the rest of the market willbe free to do so and NEST’s idea seems to be pragmatic – better to get a limited annuity broking service in play every time than shoot for the moon and fall flat on your face.

All the same , this does look a pretty hypothetical exercise. Whether this bunch are still going to be in the market in five years time which is the earliest juncture for any reasonable pots to be arising from their pensions is a question in itself.

If the point of all this research is to offer a template to occupational schemes then well and good (and I’m sure that Tom McPhail and the boys at PICA will agree here). This move of NEST will at least force the trustee boards of occupational DC schemes and the more recalcitrant contract-based providers to at the very least put in place a simple structure.

PICA tell us that while 33% of annuitants from contract-based plans use the open market option, only 25% do so from occupational schemes . This statistic should cause general distress but it should be blaring out on the monitors of Cheapside Halls so that the NAPF actually give their membership a kick up the backside!

We are a long way to a solution to the deacumulation conundrum. To get that we will need Messrs Webb Churchill and Young to start thinking serious about Scheme Pensions from NEST (some time in the future) and the PPF (some time like tomorrow).

In the meantime, well done NEST for coming up with another pragmatic, plain-speaking and I hope popular solution. It will mean sweet fanny adams in terms of NEST participants as I’m sure the super five RIPS will be superseded before NEST creates a meaningful claims history but for now – this seems a step in the right direction.

 

About henry tapper

Founder of the Pension PlayPen, Director of First Actuarial, partner of Stella, father of Olly . I am the Pension Plowman
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