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Annuity Direct: FSA implementing Solvency II through ‘back door’

Annuity Direct chairman Alan Higham says the FSA is “implementing Solvency II by the back door” by forcing insurers to hold more capital.

Annuity rates have been in freefall this year. According to analysis conducted by MGM Advantage, conventional annuity rates fell by 7 per cent between June and September this year, while enhanced rates dropped by 5 per cent.

This represents the steepest three month fall since the provider started monitoring rates in August 2009.

Speaking at a fringe event at the National Association of Pension Funds conference in Liverpool last week, Higham said: “Annuity prices have fallen quite sharply in the past few months. Anecdotally I am told the FSA’s supervision team has gone around the major insurers and told them to change their model assumptions, so they are now holding more capital.

“One insurance executive described it to me as implementing Solvency II by the back door.”

Higham also criticised the quality of advice provided to trustees of defined-contribution pension schemes.

He said: “Advice to DC trustees can be very poor and I think over the country the quality of advice provided by DC consultants is patchy.”

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