More consumers to get better value from their pension savings

Consumers will get help to make informed decisions about turning their pensions savings into a retirement income, following the outcomes from the Open Market Option (OMO) review announced at the 2007 Pre-Budget Report.

The OMO allows an individual to shop around for the best annuity deal to suit their individual circumstances. Evidence shows the majority of people buy an annuity from their existing pensions provider. This could or could not be the right decision.

The joint HM Treasury and DWP-led OMO review worked with stakeholders to see what steps needed to be taken to enable annuity buyers to make the best decision when purchasing an annuity, and a series of measures were identified.

The measures announced at the 2007 Pre-Budget Report represent a proportionate and balanced package to improve the OMO for both personal and occupational pension scheme members and include:

The Pensions Advisory Service (TPAS) will set up a web-based structured choice tool to guide individuals through their retirement income options, including choosing the most appropriate annuity for them, for example a single or joint life annuity. Stakeholders will be involved with TPAS in developing and publicising the tool, which will be linked with the FSA comparative tables.
The FSA reviewing key aspects of the OMO market against its “Treating Customers Fairly” principle – that would include looking at delays in OMO transfers between providers.
DWP will lead on facilitating the development of better-focused information on the lines of the structured choice approach, again with the close involvement of stakeholders.
The Treasury will report annually at PBR on a range of relevant indicators to assess how well the OMO is operating.

Commenting on the measures, Economic Secretary to the Treasury, Kitty Ussher said:

“The Government wants people to get the best value for money from their pension savings in their retirement – it is important that they understand the choices available to them and make the right choices now for their retirement income.”

“These measures, which couldn’t have been developed without the valuable input of industry stakeholders, will make it easier for more people to make decisions and get better value for money for their pensions savings.”

The Minister of State for Pension Reform, Mike O’Brien said:

“Automatic enrolment and the introduction of personal accounts from 2012 mean that millions more people will have access to a workplace pension, with an employer contribution and tax relief, for the first time. So it’s also important that these new savings translate into good value from the annuities market.

“The structured choice and information products will enable individuals to make annuity decisions that reflect their individual circumstances. The Personal Accounts Delivery Authority will be taking the outcome of this review into account when designing its processes."

The Review worked with a broad range of stakeholders, including the Association of British Insurers, the Financial Services Authority, Which?, the Equal Opportunities Commission, Age Concern England and The Pensions Regulator. The Government will continue to work with stakeholders on the practical details of implementing these measures.

Notes for editors

Under the longstanding Open Market Option (OMO), an individual is not required to purchase an annuity from the provider with whom they made their pension saving, and can shop around any provider for the best deal.
The Annuities Market report was published at PBR 2006.
As set out in The Annuities Market report the numbers switching provider has been static in recent years and so people could be missing out on better deals in securing their retirement income when buying their annuity.
Demand for annuities will increase further as more pension savings continue to be accumulated. The annuities market has increased four-fold in size since 1991, with nearly 400,000 new contracts in 2006.
From 2012 personal accounts will be introduced. This will include a planned system of automatic enrolment that will mean instead of choosing to join an occupational pension provided by their employer, all eligible workers will have to choose not to be in a scheme – but still have the choice of opting out.
Detailed measures from the Review can be found in the Outcome of the review of the operation of the Open Market Option
Media enquiries should be addressed to Zoë Anderson in the Treasury Press Office on 020 7270 5592 or Ben Lloyd in the DWP Press Office on 020 3267 5136
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