Non-advised annuity and drawdown sales will harm retirees, warns consumer panel

27th March 2015


Consumers face ‘real and immediate’ detriment if the regulator does not protect them from non-advised sales of retirement products.


The Financial Conduct Authority (FCA) this week set out a plan to help savers make better decisions about their pension when they reach retirement, and in particular when they purchase in annuities.


Annuities provide a guaranteed income for a retiree’s life in return for their pension pot. However, they have long been accused of being bad value and savers have missed out by failing to shop around. The regulator has said that the length and complexity involved means retirees often missed out on the best deal.


From April, savers will be given pension freedom and no longer forced to buy an annuity but may will want to buy the security of an income.


To help those consumers, the FCA said pension firms should provide an annuity quotation ranking to help identify poor value deals, better communication with retirees about their options, and over the long-term the creation of a ‘pension dashboard’ that will let retirees see all their pension savings in one place.


However, the Financial Services Consumer Panel has said the FCA’s plans do not go far enough to help those who purchase retirement products through ‘non-advice’ sales, such as buying online or automatically purchasing products from their pension provider.


Sue Lewis, consumer panel chair, said: ‘There has been evidence of a shift towards purchasing annuities via ‘non-advice’ sales for some time.


‘Coupled with imminent pension reforms, this practice will be extended to more complex products such as drawdown. Non-advised sales often have opaque cost structures and offer greatly reduced consumer protection if things go wrong.’


The panel said the shift to non-advised sales appears to be driven by ‘lighter touch regulation and higher profit margins, not consumer demand’ and that consumers do not understand the difference between advised sales, which are covered by the compensation scheme, and non-advised sales, which are not.


It has called for consumers to be alerted to the loss of protection if they go via the non-advised sales route.


‘The risk of these consumers suffering detriment is real and immediate,’ said Lewis.


‘We suggested over a year ago that the FCA should embody in its rules…the equivalent of a code of conduct for the non-advice market. It now looks as though it will be 2016 before the regulator even thinks about this.’


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