Pica's McPhail brands ABI's OMO reforms a 'fudge'

The Association of British Insurer’s (ABI) decision to ban annuity policy application forms from pension policy literature does not go far enough to encourage the open market option, according to lobby group the Pensions Income Choice Association (Pica).

The ABI is to introduce a compulsory code of practice for its member insurers which will have to remove the annuity application form from the wake-up pack communications sent to customers approaching retirement, effectively enforcing the open market option (OMO).

However, Tom McPhail (pictured), head of pensions research at Hargreaves Lansdown and Pica chairman said the reforms were a ‘fudge’.

‘What the ABI is proposing is a fudge rather than the fundamental reform which is needed to encourage more people to shop around for their annuity,’ he said.

‘Consumers only get the chance to buy an annuity once, after which they are locked in; the pensions industry should be taking all possible steps to ensure they are getting the best deal available.’

Under the new code of conduct insurers will still be able to include a quote for their own annuity which, according to Pica, may be much less than the best rate available on the open market.

MetLife joined the board of Pica in June. Distribution director Peter Carter said the ban needed to come into effect immediately.

He said: ‘We welcome this move and hope it brings a step change for those who are currently discouraged from shopping around. Making the at retirement decision more open to choice is an important move. This is a timely change and one we hope is implemented as soon as possible.’

Pica has been lobbying government and industry bodies to overhaul rules over the information provided to people buying an annuity. It is now drawing up a proposed amendment to COB rule 19.4, which governs OMO.