L&G: Forcing OMO 'counterproductive'

Making shopping around for an annuity the default option for all investors will be “counterproductive”, Legal and General (L&G) warned.

Its comments come after the Pensions Income Choice Association (PICA) called for the provision of a default annuity option in communications to at-retirement investors to be removed.

Instead, PICA said people about to purchase an annuity should be sent a "pension passport" to help them access the Open Market Option (OMO).

This move, PICA said, could help pensioners generate up to an extra £7bn in retirement income.

However, Tim Gosden, head of annuity product development at L&G, said for some investors it is inappropriate to remove the default option from communications with investors.

"Forcing people to shop around is counterproductive as some people are completely disengaged with their pension," said Gosden.

"This small minority will end up doing nothing and buying no annuity if shopping around is the default.

"In many instances, these people are with big providers who have decent annuity rates anyway.

"Some of these people will have pots which are too small to receive advice on or get a good deal from with another provider."

Gosden added no change to current requirements to make consumers aware of the OMO should be made until the industry understands why some people choose not to switch providers.

"The ABI says two-thirds of people are aware of the OMO, and one-third choose to stay with their current provider, and we need to know why this happens."

Hargreaves Lansdown's Tom McPhail, chairman of PICA, said: "Every investor can potentially benefit from shopping around.

"This might be because they can get an enhanced annuity, which are available for pots as small as £500, or because they can use trivial commutation or just because we want to get them thinking about the death benefits their dependents will need.

"There is no question of forcing people to shop around. What we are seeking to develop is a retirement process which naturally directs investors to gravitate to the most appropriate solution for them."