Title
Contents
Acknowledgements 8
The Authors 9
Abbreviations 10
Glossary of terms 11
Glossary of main annuity types 17
Preface 19
Summary 22
1. Introduction 28
1.1 Policy background 29
1.2 Options available to individuals as they approach retirement 30
1.2.1 When to retire and when to annuitise 31
1.2.2 Whether to take a lump sum payment 31
1.2.3 What type of annuity to buy 32
1.2.4 Whether to buy an annuity from a current pension provider or from an alternative provider using the OMO 34
1.2.5 Steps of the annuitisation process, as operated by the providers in the study 34
1.2.6 How individuals' complex circumstances at the point of retirement may make it appropriate to take independent financial advice 36
1.3 Research objectives 37
1.4 Project methodology 38
1.4.1 Eligibility 39
1.4.2 Sample from pension providers: opt-out procedures followed 40
1.4.3 Telephone screening and appointment-setting 41
1.4.4 Face-to-face depth interviews 41
1.4.5 Analysis and reporting 42
1.5 Profile of participating annuitants 43
1.6 Purpose and limitations of the project 46
1.6.1 The research is qualitative, not quantitative 46
1.6.2 We can comment on whether decisions made by annuitants were informed but not whether they were correct 46
1.7 Report plan 46
2. Attitudes to annuitisation 48
3. Decision-making and awareness of annuitisation options 54
3.1 When to convert a pension and stop working 54
3.1.1 Continuing in full-time work 55
3.1.2 Stopping work altogether 55
3.1.3 Working on a part-time basis 56
3.2 Awareness of the option to defer annuitisation 56
3.3 Awareness of different types of annuity 57
3.3.1 Cash lump sum 58
3.3.2 Joint-life or single-life annuity 59
3.3.3 Level-term or inflation-linked/escalating annuity 60
3.3.4 Impaired-life annuities 60
3.3.5 No awareness of choices between different annuity types 61
3.4 The open market option 61
3.4.1 Aware of the OMO but did not/will not exercise it 61
3.4.2 Actively seek information and use the OMO 62
3.4.3 Unaware of the option to purchase an annuity from another provider 62
3.5 Summary comments 62
3.5.1 When to convert a pension and stop working 63
3.5.2 Whether to take a lump sum payment, or not, as part of an annuity 63
3.5.3 What type of annuity to buy 63
3.5.4 Whether to buy the annuity from their current pension provider or an alternative provider using the OMO 64
4. Sources of information used 65
4.1 Generic written communications from the provider 66
4.2 Personalised retirement income projections 67
4.3 Information from the Department for Work and Pensions on the State Pension 68
4.4 Other sources of printed information 69
4.5 In-person information and advice from an independent financial adviser 69
4.6 Summary comments 71
5. Problems that affected decision-making about retirement 72
5.1 Problems caused by a lack of knowledge or a misunderstanding 72
5.1.1 Independent financial advisers' advice about annuitisation was thought to involve paying high, out-of-pocket fees 73
5.1.2 Small funds were thought to allow, or to merit, little active decision-making 73
5.1.3 It was not thought to be worth looking into switching provider because the OMO was complicated and time-consuming 74
5.1.4 Other misunderstandings and uncertainties 74
5.2 Personal circumstances adding complications 75
5.2.1 Multiple pensions 75
5.2.2 Tax treatment of income from pensions varied with circumstances 76
5.2.3 Redundancy at 50-plus and subsequent unemployment 77
5.3 Established attitudes and patterns of behaviour impeding a reasoned approach to decision-making 77
5.3.1 Resignation and powerlessness 77
5.3.2 Mistrust of providers and advisers 78
5.3.3 Sense of loyalty to a provider 78
5.4 Problems perceived to be created by providers 79
5.4.1 Lack of clarity of information provided 79
5.4.2 Delay 79
5.5 Summary comments 80
6. Conclusions: priorities for change 81
6.1 Annuitisation decisions are complex and irreversible 81
6.2 Annuitisation decisions are often ill-informed 82
6.3 Perceived weaknesses in provider literature contribute to less well-informed decisions 83
6.4 Other issues can have an adverse impact on decision-making 84
6.5 Annuitisation decision-making is influenced largely by financial awareness and knowledge and by level of engagement 85
6.6 The least financially knowledgeable and least engaged have the most to gain from an improved communications strategy 86
6.6.1 Independent Key messages document 87
6.6.2 Improvements in information sent to prospective annuitants 88
6.6.3 Highlighting the availability of taking independent financial advice 88
6.6.4 Increasing awareness of the OMO 89
Appendix A. Case studies 90
Appendix B. Materials used in conducting the research 122
References 171
Table 1.1 Basic annuity options available 33
Table 1.2 Common alternative annuities available 34
Table 1.3 Number of participants by annuitant type and scheme type held 40
Table 1.4 Profile of participants 44
Table 2.1 Behavioural and attitudinal traits of segments 51
Figure 1.1 Steps of the annuitisation process 35
Figure 2.1 Attitudinal segments among annuitants participating in the study 50
Figure 3.1 Awareness and consideration of different annuity types 58
Figure 6.1 Attitudinal segments among annuitants participating in the study (repeat of Figure 2.1) 85