Rockingham Retirement has, it hopes, opened a can of worms within the annuity industry and financial advisory space by scrapping its £195 administration fee on all pension funds of £20,000 and under.

The move, which will benefit thousands of pensioners, will see those qualifying pension funds converted to an annuity, bringing an end to the high commission charges tagged onto these low value pension funds. Rockingham Retirement believes that this move will be followed by annuity broker competitors and independent financial advisers (IFAs), and could ease the pressure pension pots are under at a time when they are shrinking due to the global downturn.

Steve Hunt, managing director at Rockingham Retirement, said: "Pensioners are getting a really raw deal everywhere at the moment, and our scrapping of the smaller fund charges will help at what is an extremely economies of scale and radically streamlining processes."

Hunt said the Bank of England bas rate cut will further erode interest on pensioner savings, and as over 60 per cent of pensioners do not exercise their open market option (OMO), Rockingham Retirement says this adds a typical one per cent commission charge payable to other brokers, even if no advice is given.

"That means that life companies will be helping themselves to an extra £1,000 on a £100k pension fund - for doing absolutely nothing," Hunt added. "It is an absurd situation which needs to be addressed urgently.

"The annuities industry - and financial advisers - have not covered themselves in glory in recent years, due to the excessive commissions charged by some brokers and also by IFAs and the blatant reluctance to steer those coming up to retirement towards the best deals."

Hunt said many of the bigger life firms are taking "an absurdly long time" to transfer their pension clients to an appropriate annuity deal, and just six of the 16 annuity providers involved in the Association of British Insurers' (ABI) pension transfers initiative have signed up to the system, designed to speed up transfers.

The move has been supported by Ros Altmann, former Government adviser on pensions issues, and a commentator on annuities. "Clearly, this initiative will be welcomed by thousands of pensioners who have been knocked for six by the dramatic fall in their income from ordinary savings accounts and need as much income as they can possibly get from their pension funds," she said.

- Pensions Age February 2009

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