Some of the followers on this blog may well have heard about the above story on the business news this morning. It’s a subject that we have touched on many times before on this blog, and it is important to both employers and employees.

Many UK employees save for their retirement through Money Purchase (also known as Defined Contribution) pension plans. Such schemes are relatively easy for the layperson to understand. In simple terms all the employee is seeking to do in this stage of their retirement planning is to build up as big a pot of money as possible, with the aim of converting that pot of money into a pension income when retirement age is reached.

Now it’s this latter part of the process that is of interest to us in this post. Whilst the employee may be saving with any given insurance company in the build up to retirement, it does not follow that the actual pension (usually in the form on an annuity) should actually come from that same insurer. When the employee reaches retirement, he or she can take the funds elsewhere to see if a better pension income can be achieved. This is generally a very significant financial decision for the employee, and often taken without advice. And evidence suggests that even though awareness of this issue is better than it used to be, not enough savers are looking at the market when it comes to this decision.

Last year some 55% of those making this decision (a total market of some 400,000 annuities) bought their annuity with the same insurer that they had saved with prior to retirement (according to the BBC today). Not all those decisions will have been bad ones, as often the holding insurer will provide the best market rate. Yet it’s likely that many savers would have been better served by moving their savings to an alternative annuity provider at this point.

Which brings us back to today’s news story (which can be read in full here: http://goo.gl/af31r )

The Association of British Insurers (ABI) has drawn up a code which comes into force today, and which requires insurers to make it clear to their pension savers that the option to shop around for the best deal is available. Whilst this is a welcome move, it may not significantly change the above numbers. Some insurers have been voluntarily following this approach for some time anyway, and yet the numbers exercising this option are still surprisingly low.

The problem is probably more profound. The reality is that people just don’t like reading lots of technical detail when it comes to pensions, and even warnings in plain English may well be ignored by many. If employers are sincere about helping their employees achieve the best retirement outcomes (and many are), then providing employees with access to advice and guidance throughout the savings term, and just as importantly at retirement, could make a huge difference to the retirement outcome.

It’s all part of the pensions education process that the UK is currently undertaking. And with the advent of Auto Enrolment (meaning that every employer will now be supporting pension savings) this is likely to be a topic that comes up time and time again in the media, our seminars, and on this blog.

Best regards

Steve