Market comment
For professional advisers only
What next for OMO?
02 March 2009 | Back
“It’s not the despair. I can take the despair. It’s the hope I can’t stand.” Why is it that so often the mere mention of Open Market Option brings these words to mind?
Movie buffs will recognise them from the 1986 John Cleese film Clockwise about a perfectionist headmaster who suffers repeated delay and humiliation as he travels to address an important school conference. Just as he shrugs off the last disaster and starts to hope he might actually make it, fate deals another cruel card.
The quotation popped into my head again after learning of the 2008 OMO figures from the Association of British Insurers. Our expectations of market growth were met, with a 4.4% rise in annuity sales to 452,000. But what about our high hopes that all the activity promoting the need to shop around for an annuity was at last making a positive difference? Actually things have got worse – the numbers exercising their OMO fell to 169,000, 1,000 fewer than in 2007.
Dramatic events in 2008 may have played a role. But we also know from Moneyfacts that the gap between the best and worst annuity rates widened last year, making it even more important for those retiring to do their homework and not take the ‘default’ option offered by their own pension provider.
Criticism that providers should do more to ensure retirees get better value for money provoked a robust defence from the ABI, highlighting its work encouraging pension companies to improve client literature and speeding up transfer times, along with the suggestion: “This was never going to change things overnight.” It has been seven years since pension providers became obliged to tell retirees they may go elsewhere to seek a better deal on an annuity. Despite all the reviews, initiatives and promises stretching back to the launch of OMO three decades ago, take up remains very poor.
Research compiled last July by the Personal Accounts Deliver Authority found most retired respondents had taken the default annuity option offered by their pension scheme and were no better informed about annuities than those yet to retire. The report noted: “They often had no recollection of making any decisions at retirement.”
Perhaps it is time for us to start thinking the unthinkable – is OMO the problem rather than the solution? Is it limiting choice? Perhaps it will only be when every retiree gets to see the full menu, rather than just the chef’s specials, that they will start to appreciate the opportunities and identify the best value.
Nearly 1,800 retirement annuity contracts were bought every working day last year on average, often by people who can’t afford to miss out on the extra cash. How dare the ABI tell us not to expect change to happen overnight? This isn’t a scandal waiting to happen – it’s been going on for years.
Financial Advisers, Product Providers, Trade bodies, software developers and those responsible for legislation must unite to ensure we present the growing range of retirement income options available to advisers and their clients. Let’s all ensure we take personal responsibility for executing the changes within our control to ensure OMO becomes known as the shortcut for a more progressive and positive descriptor, “Offer More Options” rather than the current passive version.
Dave Harris
PF01
