According to Pension Income Choice Association (PICA), pensioners can generate between £3.3 billion and £7 billion over the next 20 years if the way pension customers shop around are changed.
Pica further stated in its submission to John McFall’s Workplace Retirement Income Commission that if the government and industry took the initiative of replacing the default annuity option with a pension passport, reforms could be completed in a year.
“If the industry and government are serious about reforming the open market option (OMO) and helping customers and delivering the improvement, the change can be made within this calendar year”, Pica said in its report.
The Pica report said that the provision of a default annuity option should be removed from pre-retirement communication replacing it with a ‘pension passport’ document to enable consumers shop around.
“The commission has acknowledged the huge shift in workplace pension provision from DB to DC. Our submission highlights that the industry now has a far bigger responsibility for helping retirees shop around for income”, said Pica chairman Tom McPhail.
“Our submission highlights that the industry now has a far bigger responsibility for helping retirees shop around for income”, added Mr. McPhail.
The ‘pension passport’ should be simple and encourage the recipient to take action either on their own or with support from a pension scheme professional or an adviser and should explicitly state if a consumer is eligible for guaranteed annuity to ensure consumers get best annuity rates in retirement.
“Last year about one in three contract-based DC pension customers shopped around which is alarmingly low, but worse is that among occupational DC schemes the rate is even lower at just one in four, said Mr. McPhail.
“This is a key area for the commission to focus on because it is one where changes can be made quickly and the benefits would flow immediately”, he added.