LV= customers to receive new Pension Passport
LV= has teamed up with the Treasury to offer retiring customers a new pension passport in lieu of the current 'wake-up' packs currently sent out by all providers.
The pension passport will be a simple one-page document summarising how much the policy is worth, who the provider is, and whether any special terms apply – for example a guaranteed annuity rate.
Recipients will also be urged to book an appointment with the government's free guidance service Pension Wise and encouraged to shop around before purchasing any retirement income product.
Phil Brown, head of Retirement Proposition and Change at LV=, who has spearheaded the insurer's campaign, said: "People spend a lifetime building up their pension funds and we want to encourage them to make the most of their pots.
"The pension changes means that those pension savers now have greater choice as to how they take an income from their pots and we have been working with the Cabinet Office's Behavioural Insight Team to ensure that the information we provide is sufficient enough to encourage them to shop around for the right solution or combination of solution for their needs."
The wake up packs pension providers are currently required to send out to policyholders are designed to give retirees an indication of what their pension is worth and how much income it can be expected to provide. It should also tell people that they have the right to shop around for an annuity.
However, the packs - which are usually sent out six months before people are due to retire – have long been criticised for being too long, jargon-heavy and failing to adequately explain the open market option which frees customers to use their pension to purchase an income from a rival provider.
The aim of the pilot is to see if the new simpler documentation increases levels of engagement amongst retirees and if successful could replace the wake up pack altogether.
A spokesman for the Treasury said: "We have been working closely with LV= and other stakeholders to develop a 'pension passport' that will simplify and clarify people's pension information, helping them to make an informed choice about their savings. The trial has started and will take place over the coming months."
Open market option
People who have a money purchase or defined contribution pension, at retirement must use their fund (minus an optional 25% as tax-free cash) to purchase an annuity. As the annuity market is very competitive and rates differ vastly between annuity providers on a daily basis, the open market option is your right to shop around and buy the annuity from the company offering the highest rates at that time.
In exchange for any lump sum – usually your pension fund – an annuity is “bought” from an insurance company and provides an income for life. When you die, the income stops. Annuity rates fluctuate daily and depend on your sex (although from 21 December 2012 insurers will no longer be able to use gender as a factor when calculating annuities), age, health and a number of other factors, so you have to pick the right one and, once bought, its terms cannot be altered, so seek financial advice.