Improvements in OMO could generate £3.3bn extra income

Improvements in the open market option(OMO) process could help pensioners gain £3.3bn in extra income by 2030, according to research by the Pensions Income Choice Association (PICA).

The research, carried out across the South East, London and Manchester earlier this year asked groups with retirement funds of between £5000-£100,000 to discuss their experiences of converting a pension into a retirement income.

A majority of respondents who had already retired pointed to the volume of paperwork and use of jargon as key complicating factors in the process.

Again, the majority of participants demonstrated little knowledge of the open market option and its impact on their retirement income while those with smaller funds felt that shopping around was only appropriate for those with funds of at least £50,000.

Participants were also asked to give feedback on whether the three step process put forward by PICA in its Optimising Value in Retirement report would improve the current process. The three steps consist of:

• Focus on the choices and decisions people face at retirement and the action they need to take.
• Production of a personalised statement containing sufficient information for people to use to obtain quotations.
• Short communication requiring the member to inform the company/trustees how the fund should be applied.

All communications sent in this process are to be written in a clear, unbiased manner with as little jargon as possible.

The response was overwhelmingly positive with respondents impressed by the increased clarity and ease along with the reduced use of jargon. Those approaching and recently retired agreed the three step process has raised their awareness of the open market option and how it could be used.

"The consumer research conclusions were unanimously positive to PICA's proposals," says PICA board member Steve Lowe. "By adopting the new shopping around three step process customers could be accessing billions of pounds of additional retirement income and importantly getting access to a more appropriate range of retirement product solutions. Our next step is to share the findings with policy makers to seek a change to the law by replacing the open market option with a new Pension Passport."