In my last post I stated that just 6% of annuities taken out are protected against inflation, or escalating, leaving the remaining 94% as level (figures for 2007, Just Retirement).  I want to compare this with recent figures from the BT Pension Scheme, a final salary pension scheme.
The BT Pension Scheme has offered the option of exchanging inflation linked guarantees for an initially higher level paying pension since April 2009. In a recent report, the scheme confirmed that a quarter of all new retirees forego inflation-linked benefits in exchange for a higher initial but level pension.
That’s only 25% of retiring BT members going for the level pension compared to the 94% of those with personal pensions going for a level pension.
Opt out is a powerful tool
Why such a difference between the stats above? Better the devil you know? Education? Inertia?
Probably a little bit of all three, but most probably inertia. It’s a big step to “opt-out” of the default.
That’s why “Personal Accounts” due in 2012 have gone down the opt-out route.
That’s why campaigners have asked for the “open market option” rather than securing an annuity with the existing provider to be the default option.
And that’s why I think an inflation-linked annuity from personal pension retirement funds should be one of the default options (it isn’t at the moment), as this is more likely to inform and educate those at retirment on inflation risks that lie ahead. For the last 10 years, inflation hasn’t been a problem. How about the last 20 years? The last 30 or 40 years? How about the next 10 or 20 years?
Opt
For sure, to “live now” or “live later” is a big conundrum but perhaps another part of the problem lies with the unqualified adviser. The Annuity Clearing House, a retirement income specialist, recently revealed a potentially terrible lack of knowledge of “at retirement” issues in a study of 275 leading IFAs. Less than half of the IFAs questioned had a thorough knowledge of the annuity market. Just one in three had good knowledge of the increasingly important impaired annuity sector, while just one in eight feel they know enough about investment annuities.
Make sure you’re dealing with someone well qualified to go through all the options.

In my last post I stated that just 6% of annuities taken out are protected against inflation, or escalating, leaving the remaining 94% as level (figures for 2007, Just Retirement).  I want to compare this with recent figures from the BT Pension Scheme, a final salary pension scheme.

The BT Pension Scheme has offered the option of exchanging inflation linked guarantees for an initially higher level paying pension since April 2009. In a recent report, the scheme confirmed that a quarter of all new retirees forego inflation-linked benefits in exchange for a higher initial but level pension.

That’s only 25% of retiring BT members going for the level pension compared to the 94% of those with personal pensions going for a level pension.

Inflation linked annuities ought to be one of the opt out default options

Why such a difference between the stats above? Better the devil you know? Education? Inertia?

Probably a little bit of all three, but most probably inertia. It’s a big step to “opt-out” of the default.

That’s why “Personal Accounts” due in 2012 have gone down the opt-out route.

That’s why campaigners have asked for the “open market option” rather than securing an annuity with the existing provider to be the default option.

And that’s why I think an inflation-linked annuity from personal pension retirement funds should be one of the default options (it isn’t at the moment), as this is more likely to inform and educate those at retirement on inflation risks that lie ahead. For the last 10 years, inflation hasn’t been a problem. How about the last 20 years? The last 30 or 40 years? How about the next 10 or 20 years?

Not all IFAs know their annuities from their elbow

For sure, to “live now” or “live later” is a big conundrum but perhaps another part of the problem lies with the unqualified adviser. The Annuity Clearing House, a retirement income specialist, recently revealed a potentially terrible lack of knowledge of “at retirement” issues in a study of 275 leading IFAs. Less than half of the IFAs questioned had a thorough knowledge of the annuity market. Just one in three had good knowledge of the increasingly important impaired annuity sector, while just one in eight feel they know enough about investment annuities.

Those of you who have an adviser should ensure their suitability.  When it comes to making decisions over how to take your pension, possibly a one-off event, ask the adviser you are dealing with how qualified they are to deal with your situation. A good adviser, who is not a specialist in options at retirement, will often be able to call on the assistance of a specialist colleague.