The ABI Options Campaign

Annuity purchase has always been the popular option for people looking to convert their pension pot into a retirement income. Up until now the industry's focus has been quite rightly on ensuring these customers get the best deal possible. As a result we have seen increased emphasis on the open market option (OMO), which enables advisers to search all annuity providers to secure the best retirement income possible.

However, one issue that continues to cause concern is what happens once the right annuity is found. The best annuity may not be with the provider that the client has saved with and so a transfer of funds needs to take place. This transfer can turn into a lengthy process that leaves the client waiting for weeks, even months for their retirement income.

"There are a number of issues affecting advisers when it comes to annuity transfers. One is poor service standards and the other is the huge inconsistencies in terms of the documentation needed," says The Retirement Adviser's director of retirement planning, Nick Flynn. "You may think you have submitted all the information the provider requires but then they will ask for more and that holds the process up. You also tend to find providers put their least-trained people in this area. It leaves a bad taste in the mouth of the client who has saved with a company for years to have to face these hold ups when trying to access their own money."

Despite many initiatives aimed at improving matters, nothing seems to have worked so far. If anything things have got far worse, according to Hargreaves Lansdown's pension analyst Nigel Callaghan. He says annuity transfer cases regularly take months to complete and there are cases where the ceding insurer will still take 20 working days to start paying the annuity income despite having received all the required information.

"I believe this is down to commercial greed on behalf of the insurers," Callaghan says. "Clients have invested in these companies for many years and this is how they are being treated? Insurers need to invest more in their staff and infrastructure to improve things. I appreciate that in these turbulent times this can be difficult to do but insurers should not be happy with this kind of backlog. £11.5bn of annuity money moved last year - they want to keep hold if it."

 

Time for change

So if annuity providers do not want to transfer this money, what hope is there for any kind of improvement? The FSA could step in and regulate providers, but in an industry already mired in regulation this cannot be the desired way forward. While some providers are undoubtedly slow to carry through transfers, this is not the case across the industry. Standard Life and Prudential aim to complete annuity transfers in five working days. Other providers aim to complete them in 10 working days. The hope has always been to get annuity providers to effectively self regulate by working together to develop a set of service standards. However, up until now these initiatives have always been populated by those already providing decent service while those who need the most help have sat on the sidelines. But there are signs that the tide is turning, with the launch of a more coordinated industry effort backed by the ABI.

The Options Campaign, otherwise known as the Open Market Transfer Service, was launched in October 2008 with the aim of improving turnaround times and standardising processes. The ABI teamed up with systems provider Origo to develop a system that enables information to be transferred between providers electronically rather than via post and so dramatically cutting down transfer times. The campaign launch was preceded by a pilot scheme earlier in the year involving Prudential, Legal & General and Aegon Scottish Equitable. So far 15 providers, accounting for more than 90% of annuity business, have signed up to the scheme with more providers expected to follow in due course.

"It has been widely acknowledged that providers need to do a lot better," says Norwich Union's head of annuity proposition, Darren Dicks. "The time it takes to transfer annuities is a source of great frustration for both clients and their advisers. It is the right thing for leading providers to get involved in this campaign. It simply isn't acceptable for providers to hold on to clients' money once they have exercised their option to move it."

However, the initiative goes beyond merely putting new electronic systems in place. The real success of the Options Campaign has been getting providers to talk to each other to standardise processes, which again leads to huge time savings.

"All annuity providers need certain documents legally but then each company would then have different tax practices and so would need different information to comply with these," says Prudential's annuity business director, Karin Brown. "One advantage of the Options Campaign has been we are able to compare what information we all require and see where we can simplify it."

The participants also worked with HMRC and the Department for Work and Pensions to see where processes could be streamlined.

"One issue we raised was HMRC's need for separate customer consent forms - completing all these forms, getting signatures and posting them was very time consuming," says ABI spokesman Jonathan French. "We've received agreement from them that we don't need to send these via post, we can do it online instead. The Options system requests the same information from everyone - it will still appear on the companies' branded forms but the information is standardised."

It would seem the new process is starting to bear fruit. The ABI has pledged to publish annuity-transfer figures on a quarterly basis from April but according to French, the number of days annuity transfers are being completed in is now in the low teens. This is backed up by advisers who report great improvements in service standards.

"We are seeing real improvements when dealing with providers through the Options Campaign," says Flynn. "We are seeing noticeably quicker transfer times and we do not have to chase providers so much to make sure they've done what we asked. It is a simple process and easy to use system, and we have really seen a difference. It's good to see this issue being taken seriously - it's just taken a bit of time and some pressure but we are getting there."

However, while praising what the campaign is trying to achieve, Callaghan raises concerns that not all providers involved with it are actually using the system and again he questions their commitment to really bringing about service improvements.

"I do think ABI Options is a great campaign and should be applauded," he says. "However, while 16 companies have signed up to it so far, only about seven are using the system. Considering they have been talking about this for 18 months then why aren't they all using the systems? I know there are legal and compliance issues but they aren't insurmountable - those who have gone live range from huge providers like Prudential right down to smaller providers like Partnership so there's no reason why they all can't use it. Once we can actually say that all 16 companies are using the system, then that will be great and we will see the real benefits starting to come through."

However, according to French, demonstrable progress is being made in getting all providers online and work is ongoing to get even more providers on board.

"We are working with other companies on an ongoing basis to encourage them to get their internal processes in place so they can use the system," he says. "Our aim is to have all participating companies using the system by the end of quarter one. For instance, MetLife have signed up for the scheme but as they aren't annuity providers they won't be able to use it until the next phase of the project, which is pension-to-pension transfers. Both Pearl and Resolution are participating and we are talking to other closed life offices to persuade them to join"

 

Service standards

So it would seem that the Options Campaign may actually be making progress in improving service standards for annuity transfers but undoubtedly more needs to be done. According to Norwich Union's Dicks, he would like to see the Options process become an industry benchmark that all providers should look to comply with.

"We need to send out the message that if you want to be involved in this market then you have to do right by your customers and get involved with initiatives such as this," he says. "There needs to be a set of standards that we all participate in and I feel the Option process should be the default position. The more customers see improvement in the standards of service they receive, then the more pressure all providers will feel to comply."

He is joined by Prudential's Brown, who agrees the Options process should be the industry norm and that the FSA should deal with those who do not get involved.

"The vast proportion of the market is signed up and we hope the standards set down in the Options Campaign will become the industry norm," she says. "We would expect the FSA to get involved with any company who doesn't comply as they would be in breach of TCF outcome six, which covers whether unreasonable barriers are being put in place when looking to switch provider or product. We were really pleased to be part of this scheme - we feel it has made a real difference."

Categories: Investment | TCF

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