FSA tells insurers to speed up annuity transfers
UK - The UK's financial services regulator, the Financial Services Authority has revealed the process of transferring pensions annuity cases between at insurance companies is being delayed in over 60% of cases in part because participants are confused by the forms to be completed.
The FSA has been pursuing a campaign in recent months to encourage consumers, who invest in a defined contributions pension arrangement and then have to buy an annuity with their fund at retirement, to take up the ‘open market option' on annuities as this allows them to buy an annuity from any insurer in the market and potentially get a better regular retirement income.
However, further investigation of 55 annuity firms found almost 40% of those companies did not provide clear information to pension customers approaching retirement age, to enable them to make a decision.
While the regulatory body said some good practice in the transfer of annuity funds and annuity provider literature is visible, and customers are therefore being treated fairly, it is still concerned there were delays in over 60% of the 238 annuity transfers reviewed.
It was acknowledged the delay can be among any of the parties - transferring and receiving firms, financial intermediaries and customers - but claimed the complexity of the process and "confusion caused by the diversity of the forms" were key reasons for the delays and is therefore concerned it could have a financial impact on annuity recipients.
The FSA said it intends to work with the Association of British Insurers - the body representing UK insurance companies - to "achieve standardisation and rationalisation of the systems and documentation involved in fund transfer".
"The decision on whether to buy an annuity from a current provider or to switch to another insurer on the open market can influence an individual's lifetime income. Poor communications from insurers may result in people making poor decisions or failing to take any action to maximise their retirement income. At the same time, if a consumer decides to exercise the open market option, they can suffer if fund transfer does not happen in a timely manner," said Sarah Wilson, insurance sector leader at the FSA.
That said, the ABI confirmed today it has already begun that work, as the body launched fresh guidance to pension providers on July 10 about the content of these ‘wake-up' packs and what they should contain.
More specifically, customers will receive a clear, brief summary of the Open Market Option through the new guidance, along with the different types of annuity available and other key issues and options consumers should consider as they approach retirement.
Maggie Craig, the ABI's director of Life and Savings, said at that time the ABI had also launched an initiative to "find new ways of speeding up payments", adding the body already had the majority of its members backing the project.
"The way that firms deal with pension policyholders provides an indication of how they treat their customers more generally, and we will be looking for firms to demonstrate good practice in this area when we come to assess their overall TCF compliance in light of the December deadline."
The FSA's review forms part of the Government's overall review of the Open Market Option, announced in the December 2006 Pre-Budget Report.
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