26th March 2015
Consumers are missing out on getting the best annuity deals and the retirement industry must do more to help savers make better decisions, the City watchdog has urged.
On Thursday, the Financial Conduct Authority (FCA) published its Retirement Income Market Study, which confirmed its previous findings that competition in the annuity marketplace is not working in favour of consumers.
Annuities, which provide retirees with a guaranteed income for the rest of their life, in exchange for their nest-egg have long been accused of providing bad value. The regulator said that many savers are missing out by not shopping around for the best deal and are often deterred from doing so by the length and complexity of the process.
While from April under the new pension freedoms, savers will no longer be forced to buy an annuity and instead will be able to use their pension savings as they see fit, it is expected that many retirees will still want the security of a regular income.
The FCA has put forward a number of remedies designed to support consumer choice in the annuity market, particularly in light of the forthcoming pension reforms. They include:
In addition, it wants to see firms framing the options available to help consumers make good decisions, rather than to drive sales of certain products. Christopher Woolard, director of strategy and competition at the FCA said: “The retirement income market is set for the biggest change in a generation. Over the next 12 months we want to ensure that the market is fit for purpose in the new landscape.
“We received considerable support for our proposals and we will be working with Government and the industry to implement all of our recommendations so that consumers can have confidence that they are getting the best possible outcome when making decisions on their retirement income.”
Commenting on the report Barnett Waddingham senior consultant Malcolm McLean said: ““There is very little that is new or surprising in this report’s findings – in many respects it simply reiterates what was in the earlier interim reports.
“It recognises, as we all do, that if consumers are to get the best possible deal out of an annuity purchase then they need to have access to the open market and shopping around by them or for them is an absolute must. To that end the requirement that firms provide an annuity quotation ranking for consumers to see the benefit of shopping around will be helpful but in itself does not guarantee the best outcome for the would-be annuitant. The need to redesign and radically simplify the wake-up pack is a complete non-brainer and should have been done years ago.”
Steven Cameron, regulatory strategy director, at Aegon added: “We support the development of a Pensions Dashboard as a virtual aggregator, which will allow customers to see all of their pensions in one place. Rather than building a standalone and very costly database, we support a framework, supported by standard messaging, to allow information to be pulled together when needed. Customers are most likely to engage with pensions through their current provider or scheme so it’s vital they can access the dashboard through this route.
“How best to provide a meaningful annuity quotation ‘ranking’ does need further thought and we welcome the forthcoming consultation as a route to fully exploring challenges and solutions.”