The Pension Income Choice Association (PICA) claims that Britain is on the brink of a “national tragedy”, and has proposed a radical change to the current ‘open market’ option, where pensioners are able to shop around among providers for the best annuity deal.
More pensioners should shop around for the best annuity
Arguing that only about 40% of those looking for a pension annuity actually bother to compare the rates of different pension providers, PICA has come up with a ‘pension passport’, which Steve Lowe, one of the founder members, insists will simplify the process, encouraging comparison and “empowering” consumers to shop around.
Currently, people approaching retirement age are sent so-called ‘wake-up’ packs, which PICA chairman Tom McPhail dismisses as “designed not to be read”, citing the low numbers of people who compare annuity providers as evidence of their failure, even though pensioners can increase their income by 30% per year by shopping around.
PICA’s new plan for pensions
PICA is convinced that the pension passport will give retirees all they need to make “an active and informed choice”, taking into account their personal circumstances, including the value of their pension pot and their state of health. The organisation proposes a three-step model:
1. The retiree receives a (new, improved) wake-up pack;
2. The retiree shops around with a pension passport;
3. The retiree makes an informed decision as to where their money will go.
In order to help those with smaller pension pots, PICA proposes to set up a register of advisers, alongside the pension passport, specifically to assist those with limited means, and to enable them to make the most of what they have by handpicking the provider best suited to their requirements.
Benefits for all, not just pensioners
Research carried out on behalf of PICA by economic forecast consultancy Oxford Economics suggests that the pension passport scheme might result in £3.5 billion extra income during their retirement for pensioners retiring in 2009 – which in turn would boost consumer spending by £2 billion and increase tax revenues by almost £1.7 billion.
Parliament is due to debate a new pensions bill in 2012 and the founders of PICA – along with many others – are hoping that their annuity reforms will be included. Steve Lowe is optimistic, after a promising meeting with Mark Hoban, financial secretary to the Treasury and Steve Webb, pensions minister, and believes that, with some revisions, the pension passport should be included in the forthcoming discussions about reforms.
At the heart of PICA’s proposals is the simple concept of choice. With pension passports and a streamlined wake-up pack, PICA hopes to enable every retiree to make a fully informed choice about their financial future.