UK - Pension providers should be obliged to offer customers access to a market leading guaranteed rate at retirement, says Watson Wyatt in its response to the Inland Revenue consultation paper, Modernising Annuities.
If their own rates are not sufficiently competitive this would mean making the annuity purchase with another provider, said Mike Wadsworth, a partner at Watson Wyatt. Customers would agree to the purchase by 'ticking boxes' or opt to take advice on a wider range of options at their own initiative.
Watson Wyatt has a number of other suggestions towards creating a more efficient market in annuities:
* To encourage a more competitive market for smaller funds, providers would be able to shorten the payment period until each payment exceeded a minimum amount, perhaps £50.
* Information on market rates should be available from the Financial Services Authority (FSA) and in Post Offices. Standard communication material should also be supplied by the FSA.
* There should be a CAT standard version of drawdown.
* Customers should be encouraged to break the link between retirement and annuity purchase - limited period annuities (LPAs) and/or CAT mark drawdown should enable the middle market to do this.
* LPAs with full return on death should be available from banks and building societies (as a deposit product) thereby introducing greater interest rate competition into the market.
* Those who wish to defer taking annuity income should be able to 'roll it over' tax free into future annuity payments.
* Transfers of LPAs could be made to work; for throughout life annuities we do not believe that there is a satisfactory solution.
Other suggestions Watson Wyatt makes in its response include:
* For death benefits, we believe capital protection should be allowed as an alternative to guaranteed payment periods.
* We would like the possibility of including some long term care cover in annuities to be permitted, perhaps subject to a cap on the proportion of the purchase price applied in this way.
* We would like to see banks, building societies and other organisations enabled through de-polarisation to offer streamlined annuity advice and transaction services, particularly to provide more choice to the middle market.
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