Stuart Bayliss : “Until two years ago, the only insurer who ever advertised annuities was Equitable Life. Britannic now does, Prudential occasionally does, but that’s about it. They are perceived as a consequential product. The amount spent on them has gone up a little bit over the past 10 to 15 years, that’s almost entirely related to paying higher commissions, but there is no marketing as such. I think that the only decent marketing this year has come from modernising annuities and the Government’s stand against the age 75 rule.”

Donna Bradshaw : “The profit margins in annuities are pretty tight for the companies in the market, so if they put more into marketing it’s going to affect the overall payouts they are going to make because it will have to be taken out somewhere.”

Dermot Campbell : “I think that IFAs should be taking more responsibility for marketing. Perhaps there’s a corner of the market that we’re not catching at the moment. Perhaps the reason we’re not catching it is we don’t perceive it as very valuable and we tend to avoid it.”

Keith Spencer : “What needs to happen is to simplify the administration processes of transferring the money. There is no real reason why it should take four to six weeks to transfer the money from one organisation to another, it takes about three seconds to do it with telegraphic transfers.”

Donna Bradshaw : “What are the problems in the process from our side as well? There are steps that we have to take in our organisations to make it slicker.”

Peter Quinton : “I believe the providers are one issue, but the simplification of the legislation needs to be improved dramatically as well. I get really worried now with Pickering and Sandler going on. A new act will come up and just add another tier of legislation.”

What process is most likely to ensure that the vast mass of retirees are aware of, and can participate in, the open market option?

Peter Quinton : “I am hopeful that the new rules, to be introduced this month, will do a lot towards awareness and ensure insurance companies make people aware of what an open market option is and the value of using it. I think we will see more standard paragraphs that will do that for us. And I don’t think it should be isolated to annuities, it should also mention income drawdown.”

Stuart Bayliss : “I don’t think it will help the 46 per cent of retirees – according to the Financial Services Authority’s (FSA) research – who didn’t realise they had bought a different product because their perception was that they had bought a pension and it is a seamless transaction. The key to the mass market will be delivering a process through the pension provider.”

Keith Spencer : “I think the main problem areas are people who are not regularly being advised by IFAs. It comes down to proper notification by the product providers to ensure that people are aware they have a choice. There is a fair amount of publicity about it. You can write what you like but can you get people to read it and understand it?”

Dermot Campbell : “I think people must learn they need to take advice at certain points in their life. It’s incredibly important to receive advice at the point you retire. I don’t think the advice has to be given by a highly qualified, experienced IFA. I think there are certain levels of advice that can be given by someone who is less qualified, but has a level of understanding and demonstrates a level of knowledge.”

Keith Spencer : “It’s where you go for that advice, because a lot of pension funds are comparatively small and so the earning potential for whoever gets involved with it is not going to be that great.”

Peter Quinton : “I would turn my attention to a simplified tier of advice which has been suggested by other people in the industry.”

There seems to be a wide misunderstanding of the value of an annuity in the public arena – what is the best way of overcoming this?

Donna Bradshaw : “There is this huge public misconception and a lot of that is driven by what we read and what we see in the news. We tend to focus on the negatives rather than the positives and that plays on people’s emotions. Our first step is getting the media to look at things differently.”

Dermot Campbell : “The open market option is something the FSA needs to be addressing quite seriously in its campaign of educating the public. Income drawdown is fine for the relatively affluent, but it’s completely useless for most of society. Most financial advisers tend to spend most of their time advising the more affluent and focus on capital-protected annuities and the value of those, but they only work for people with lots of money.”

How do you see better education and information about annuities affecting IFA market share?

Peter Quinton : “I think it will help to educate the consumer and they will be more likely to want to use an IFA for advice. The more education, the better for IFAs.”

Keith Spencer : “If the education and the awareness is there, then people will try to seek advice to find out what they should be doing. Unless the public is aware of the choices, they are not going to look for advice anywhere.”

Donna Bradshaw : “I think if you do get basic education, you are always going to get that small band of people who do their own thing, who think they can do it better than anyone else and will continue to do that. I believe if we could get that information out there, it would actually increase our market share and not decrease it.”

Dermot Campbell : “I don’t think that IFAs need to increase their market share, they just need to focus their market share. If you can educate people and make available a new distribution channel, it means that we can concentrate on the bits of our business and the types of clients we can add more value to.”

To what extent should underwriting be used to offer differential annuity terms to retirees?

Peter Quinton : “Postcode annuities are already in existence. You can get the select annuity from MGM and you don’t have to live in the postcode for any period of time. Lifestyle annuities and impaired life annuities are going to grow tremendously over the next few years. Any competitor that’s serious in the market is going to have to start to look at the variations on that.”

Keith Spencer : “I think a lot of companies will start to open up more on the annuities side. I was talking to Scottish Equitable recently, which has not had the best record on annuities, but it reckons it is moving into lifestyle annuities as well, shortly.”

Donna Bradshaw : “I’m against genetic testing. When I look at financial products I have issues about life cover with genetic testing too. I think with annuities there’s a positive side - I’ve not got long for this earth so with the rate I get, I get more income. But on the flip side for people with life cover, I think that it could go some way to excluding people from getting insurance.”

Peter Quinton : “It comes to the same thing as postal codes. The more you differentiate, the more costs you are driving in to get that information to differentiate from, and the uplift you are getting isn’t tremendous. It is not like the fully underwritten impaired ones. So there is a limit to how far we can go to differentiate annuities. But I think impaired life annuities and lifestyle annuities will come in without the consumer realising.”

Stuart Bayliss : “If by the age of 65 you smoke and there is nothing else wrong with you, you are likely not to have that different a life expectancy from someone who doesn’t smoke. So I think you’ve got problems with it.”

Donna Bradshaw : “I think the one area of annuities we do need to look at is not an underwriting issue, it’s actually the differences between male and female annuity rates. But while there is compulsion, we have to buy these things. I think it would be better for the market if we took away that unfairness between them.”

Peter Quinton : “At the moment, the vast majority are males that have built up the pension fund and the spouse gets the income when he dies. But if they built an equalisation into it, the male annuity rates would come down and the female rates would probably inch up a little bit, but overall, those couples would be worse off.”

Dermot Campbell : “I think the postcode underwriting is not a bad thing because the postcodes where there tend to be lower socio-economic groups who tend to have much lower incomes and much more hardship, get more income under an annuity. Postcodes where there tends to be more affluence get less income under an annuity.”

What role do you see for online annuities both pre- and post-depolarisation?

Keith Spencer : “The vast majority of people have access to a computer or interactive television. This could well be one way of addressing a lot of the issues we have identified.”

Dermot Campbell : “I think the concept of self advice does have a lot of problems associated with it. An individual being able to go out and buy an annuity online has major potential for disasters.”

Donna Bradshaw : “I think it is a systems issue. The problem is creating the right program and thinking about what you are going to do online. Anything can work if it’s been thought through enough.”

Keith Spencer : “You’ve got similar things already on the internet anyway if you want to open a bank account or take a loan. I know it’s more simple than the range of options available on an annuity, but I still think it’s better than there being no advice at all, particularly at the bottom end of the market.”

Stuart Bayliss : “Maybe the consumer is able to gain an enormous amount of information but he would be able to do that online. He might even be able to go further and see real live pricing in a system like that. I think someone has got it down to checking six questions, so you vet some verification process by talking to some level-one qualified adviser who has a system that is equally supportive.”

Peter Quinton : “I think the legislation needs to be cleaned up and the better than best advice needs to be cleaned up from IFAs’ perspective before you can deliver this.”

What is the future for annuities given the rate of increase in life expectancy and how should the industry react?

Peter Quinton : “I think one of the shifts that is happening is towards investment-linked annuities. Maybe now there’s more opportunity to get a better return in the longer term with investment-linked annuities.”

Stuart Bayliss : “I think that the risk profile of annuity funds has been down graded. That has protected annuity rates from attrition as a result of life expectancy increases from the last quarter of 1998 through to the end of 2001. Some companies have already started to look at the idea of having equities in their annuity book. But rates can’t keep going down in order to protect against life expectancy, we need more asset ranges.”

Peter Quinton : “The reinsurers are used to taking the risk into account, but then the providers are paying for the cost of reinsurance, so it is another cost shifted into the pricing of annuities.”

Stuart Bayliss : “I think the future of the annuity is good. But we have to work out a way to buy annuities later in the process. For a much broader group of people, a broader range of investments is correct, for longer, maybe into retirement. Legal & General has done some work on this on the lines of out of a group of 1,000 retiring today, how many are going to be 90? And it is over 40 per cent.”

Donna Bradshaw : “Annuities will continue to have greater importance than they do now, because more and more people will be purchasing them. But when do they start looking for those guarantees in their lives? It may organically shift up rather than be something that is imposed.”

Stuart Bayliss : “There is no argument for staying in an investment-linked annuity beyond age 83. When Canada Life first brought out its investment-linked product it worked out your last chance to renew was before your 80th birthday.”

Dermot Campbell : “That’s the problem that I have with investment-linked annuities. The last two years have given us a rude awakening. We all knew in theory that you shouldn’t invest money for less than five to 10 years. A lot of us have moved our focus to five years which clearly demonstrated that was not the right thing to do.”

What practical alternatives to an annuity are there for a 75-year-old who needs a guaranteed income for the remainder of his or her life?

Peter Quinton : “In an annuity you can have almost any investment mix, but on top of that you’ve also got the cross subsidy so it would be difficult to beat.”

Dermot Campbell : “If you are affluent, and have other assets you can look at other alternatives, but if your priority is providing an income then the annuity has to be the best.”

Donna Bradshaw : “I am of the view that there shouldn’t be a compulsion to buy, but then IFAs are needed more because we have got to give the advice where it is essential that you do buy an annuity. For some people it does not make sense for them to purchase an annuity.”

Stuart Bayliss : “There is a small group of people who have ended up with more of their assets in a pension than they would otherwise like and at the moment there is no allowance in relation to them at all. The point that the Treasury and the Inland Revenue have come back with is yes, but why have they ended up in that position? It is because people have been advised to do so. I think we might be able to say in the future, somebody who declares at retirement they have more assets than they need, they would be able to pay back the tax in a similar way to income drawdown.”

Copyright Centaur Communications Limited. Reproduced by kind permission.