ABI Consultation Paper on OMO Code of Conduct
The ABI has finally been pressed into taking some meaningful attempt to improve the outcomes people have at retirement.
The ABI has a number of problems to overcome with its diverse membership. Some write good value annuities; some can’t and don’t want to and some can’t but would like to. It cannot please even most of these people some of the time. It needs to decide whether it is going to stand up for doing the right thing by the consumer or whether it is going to attempt another compromise.
The ABI paper cites evidence based on research which isn’t credible. For example it has long claimed that 1/3rd shop around and use OMO; 1/3rd shop around but stay put and 1/3rd don’t shop around. Very few people in the industry believe the middle 1/3rd figure and many research firms I have spoken to positively disagree with it.
Consultation papers are a great way of getting a diverse range of opinions. I am deeply sceptical of the ABI’s good intentions with this paper based on its track record of fudging the issues. I’m also cynical about consultation papers. In the DWP, diversity in consultation has been used to evidence a lack of consensus thus justifying the decisions already made by officials. I have long since stopped responding to DWP consultations for this reason. Even Steve Webb realised this on his ‘Small Pot’ consultation where he said this is one of the few where we haven’t already made up our minds.
Policy makers need to work at re-building trust and confidence with their approach. There is a formulaic approach to engaging with stakeholders that does not encourage informed challenge and ideas. If you do not have deep pockets to lobby and influence then your views can go unheard.
My views on the OMO solution are in my earlier blog. http://www.retirementangels.com/2011/11/steve-webb-open-letter-on-improving-retirement-outcomes/
The ideas aren’t that contentious or even new. The DWP consumer research on OMO done in 2008 backs this up. http://research.dwp.gov.uk/asd/asd5/rports2007-2008/rrep515.pdf Pages 87-95 give the conclusions which I highlight here.
6.6 The least financially knowledgeable and least engaged have the most to gain from an improved communications strategy
At present, those who are not financially knowledgeable or choose not to engage in decision-making about annuitisation may be making decisions without being aware that:
• at annuitisation they can tailor solutions to their own circumstances and may achieve more satisfactory outcomes as a result;
• they may be able to take advice without out-of-pocket costs.
Even those who appreciate the significance of the annuitisation decisions may not cope well with the provider information, which they often see as only suitable for those confident or experienced in comparing financial products. Facing difficulties in understanding or failing to read provider literature is occasionally compounded by fact that the information is sent later than the participant would have wished, leading to decisions that are hurried and under-informed.
6.6.1 Independent Key messages documentIn many cases, individuals’ inability or refusal to deal with the large quantityof information they receive is compounded by the fact that they had not beenexpecting to receive so much information. A simple document, sent some time before decisions must be taken, explaining the broad options available, could address this issue.
6.6.2 Improvements in information sent to prospective annuitants.
The information that providers give to individuals before retirement is in some need of standardisation and simplification; it should be written in plain English.
6.6.3 Highlighting the availability of taking independent financial advice
Even good-quality, publicly-available financial information and advice may not be sufficient for everybody’s circumstances, which may be complicated. How IFA advice about annuitisation might be obtained without out-of-pocket costs being incurred should also be highlighted.
I can only hope that in 2012 policy makers will stop fudging the issue and agree to implement the solution they all know is needed but have lacked the moral courage to grasp. As we enjoy a comfortable Christmas period, we might spare a thought for those less fortunate people than ourselves. Pensioners for whom the extra income would have allowed the house to be heated this winter and food put on the table, rather than a choice between the two.
- Confused.com launches Confused Annuities (confused.com)
- Decision-Making: Confirmation Bias (colleensharen.wordpress.com)
- Meaningless choice (henrytapper.com)
- DC Risk sharing aux etats de Jersey (henrytapper.com)
- MANCHESTER – (that’s where the answers are) – NAPF2011 (henrytapper.com)
- DWP – Do some Work for your Pensions. (henrytapper.com)
- Extending a hand to the Regulator (henrytapper.com)