Advocate: The ABI code of conduct on retirement choices

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Does the ABI’s code go far enough to aid consumers? In this month’s advocate, we have two experts give us their take on the situation.

Yes: Tom McPhail, head of pensions research, Hargreaves Lansdown

The ABI open market option code of conduct is a big step in the right direction, even though it does not fix the annuity problem completely. It establishes a set of circumstances in which the vast majority of investors will shop around for their retirement income before starting to draw on their pension savings.

It is true it isn’t the whole answer, but it will be. For example, it does not ensure that occupational DC scheme members will all be fed into a shop-around process. It does not ensure that where an insurance company takes on the shop-around process for their existing customer, that the customer will be offered market competitive rates.

And where a customer uses a non-advised solution (as many will), it does not ensure they are presented with appropriate information regarding the choices made. The good news is all these challenges are being addressed. The NAPF, the Pensions Regulator and the ABI are all looking at ways to improve outcomes for DC scheme members.

The Pensions Income Choice Association is creating a directory of intermediaries who can help with shopping around; it will require adherence to the ABI Code of Conduct as a minimum standard. It will also focus on the breadth of shopping around propositions (such as the number of companies from which an intermediary sources their rates).

The FSA is conducting a thematic review of annuities to identify where consumer detriment does exist (if at all). All these measures are building towards a market which will deliver good outcomes to the consumers it serves.

No: Stephen Lowe, group external affairs and customer insight director, Just Retirement

The ABI’s new code is an important move, but its shortcoming is it leaves the estimated 2.5m members of trust-based schemes in the dark.

Whenever a pension saver needs to convert a money-purchase pension-pot into retirement income, there needs to be high levels of support and guidance, helping them understand the options.

The code aims to do that for the 3m people who have saved in contract-based schemes. Outside its scope are the 2.5m members of occupational trust-based arrangements which are overseen by The Pensions Regulator.

Trustees are required to help members make appropriate decisions on converting pension savings into a retirement income. Yet historically take-up of the open market option has been lower for members of trust-based than contract-based arrangements.