ABI consults on fresh code of conduct for OMO

The Association of British Insurers has launched a consultation on a new code of conduct for providers on the open market option, with proposals including the requirement to issue a standard statement on the benefits of shopping around on the first page of all client communications.

According to the ABI, many people are still missing out on a better retirement income by not shopping around when they cash in their pension for an annuity.

The association says that, since 2009, the number of people buying an annuity from a different provider has increased from 36 per cent to 44 per cent, but around a third of people continue to choose not to shop around.

In September, the ABI announced that it would introduce a compulsory code binding all its members to actively encourage people to shop around, which would require all members to remove the annuity application form from from correspondence.

This, the ABI said, would mean customers will not simply be able to roll their pension over into an annuity with the same provider.

However, the proposal attracted criticism from many who saw it as a unilateral move that lacked the scope of proposals being drawn up as part of an OMO working group set up by the Department for Works and Pensions.

Some even suggested that the code was an attempt to derail the working group’s progress by convincing the government that action was being taken and therefore that more comprehensive rules are not required.

Today’s consultation asks for views on a draft code of conduct for ABI members that will “go further” than simply removing the application form.

Proposals within the new code could require firms to:

• include a standard statement on the first page of all communication with customers about the benefits of shopping around;

• follow strict rules when providing illustrations of possible annuities that have not been asked for by the customer to ensure options are comparable;

• include a very clear statement about the benefits of enhanced annuities due to medical conditions, even if the provider does not offer the product; and

• ensure that sales processes take customers through the key questions they should consider when buying an annuity.

Maggie Craig, director of life and savings at the ABI, claimed that “too many people” still choose not to shop around.

She said: “They could be missing out on thousands of pounds of retirement income as a result. We want to do everything we can to help people get a good income in retirement which is why we are asking for views on the code we plan to introduce.

Ms Craig said the ABI also wants to hear views on whether providers’ illustrations of possible annuity options have an impact on customer behaviour. It plans to undertake consumer research to gather evidence on whether the code will have the desired effect of more people shopping around.