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Consumer Panel sets out huge gulf in non-advised annuity commissions

A study by the Financial Services Consumer Panel has found huge differences in commission payments from non-advised annuity services, with provider fees varying by almost £1,000.

In a report, published this week, the Panel called for all workplaces to offer their own non-advised service with a focus on transparency.

Investigating 15 online firms, and using the example of a £49,950 pension pot, minus the 25 per cent lump sum, it found fees for the same service ranged from 0.75 per cent to 3.35 per cent, with costs ranging from £281 to £1,255 .

The panel says the FCA should create a code of conduct for non-advised annuity sales focusing on disclosure.

It wants to end opaque commission arrangements, which it says have grown due to the rise in non-advised sales.

It also wants a rigorous market study to examine possible exploitative annuity pricing.

The Panel is also calling for the open market option to be strengthened and for the Money Advice Service to establish an annuity adviser website.

Annuities have come into the political firing line as payments have plunged due to low interest rates and gilts.

Consumer Panel chair Sue Lewis says: “We urgently need to reform this market, particularly for those with smaller pension pots, who usually cannot get independent advice. Our recommendations are intended to make choosing the right annuity more straightforward.”

Hargreaves Lansdown head of pensions research Tom McPhail says: “As the report identifies, much of the market innovation is led by intermediaries offering non-advised solutions and so it is vital they deliver good results for their customers.”

An FCA spokesman says: “We welcome the work done by the Consumer panel and we will consider their findings carefully as part of our review of annuities. We will be publishing the outcome of that piece of work in early 2014.”

In September, FCA policy director Chirs Woolard hinted at a possible competition review of annuities, pointing to “inertia compounded by inherent complexity”.

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Comments

There are 7 comments at the moment, we would love to hear your opinion too.

  1. I have had the misfortune of having met this panel in days gone by. Before that encounter I had dark wavy hair.

    They consistently show themselves up for the numpties that they are. (Then what can you expect when the panel consists of so many journalists).

    When will they get it into their fat heads that there is no such thing as non-advised and that many of these DIY websites are nothing more than scammers?

    On such a small pot did they investigate whether the annuity purchased was even appropriate? Was it joint or single life? Did it have a guarantee? Was escalation investigated? Was an impaired or enhanced annuity appropriate?

    As ever the panel only focuses on cost – not value. That the DIY sites offer neither seems to escape them. But then they are so averse to independent advice – because it costs money. Never as much I’ll warrant as the upper end of what they have discovered.

    Remember these are the people who are great fans and advocates of the MAS.

  2. MINIMUM you can advise on an annuity for is about £600 and that is pushing it which is 1.2% of £50k QED a £20k pot works out at 3% of the sum involved. advice involves risk to the adviser, so remove the risk and the cost of non advise should come down to about £200 I would have thought i.e. 0.4% on £50k or 1% on £20k. Under 18k and triviality MAY apply, but only if the consumer is 60+ and has no other benefits. Hence why the argument should not be about how much non advice costs nor how much advice costs, but instead why the Govt doesn’t make the trivial pension limit £50k and be done with it!

  3. Once again lets perpetuate the myth that pensions are a rip off.

    How does the FSCP think that workplaces are going to offer a non-advised service – as usual these organisations think that everyone has an open cheque book like themselves and are willing and able to do this.

    The levels of fees/commission etc. do not appear to be excessive and yet this story has made it into the press suggesting that commissions are a rip off etc.

    Well done the FSCP for putting people off from saving for retirement – numpties.

  4. @Harry Katz you might be interested to know then that Dr Debbie Harrison of Keydata fame who is on the FCA consumer panel (still) who said after the Keydata debacle she was looking too work outside the FS industry and who has NEVER been interviews on the subject of Keydata post the FSCS pursuit of advisers using legal action was interviewed by the BBC about expensive annuities last night. Did no one think too ask her a few questions about Keydata on camera?

  5. @Phil

    If there was something rotten in the State of Denmark then some of the panels on the FCA are positively sclerotic.

  6. Dr Harrison’s position on the FS Consumer Panel is untenable in view of the fact she has never publicly spoken in connection with the Keydata debacle and the pursuit by her peers at the FSCS of any and all advisers who recommended these Life Settlement Plans in view of her statement to me and I quote from my email to her in October 2010 “Before going in to any detail, I would just like to say I am not looking to lay blame at anyone’s door, I am simply trying to find some clarity on the Keydata issue and problems now being experienced by both client and advisers alike.”
    Her response “Dear Phil What happened with Keydata shocked me then and shocks me still. I had an impartial academic interest in the underlying asset class – and indeed wrote a report about this
    with a colleague at the pensions institute (you can find the report at http://www.pensionsinstitute.
    org). I was introduced to Keydata by a reputable financial PR company and for the record I have
    to say they were as stunned as I was when the proverbial hit the fan. I haven’t been paid for a lot of my work for Keydata, needless to say, and I doubt I ever will. I do feel very upset that my report has influenced advisers and investors with such terrible results. This experience was one of several events which led me to change career. I haven’t quite got there yet but I have a PhD in English Literature and am
    looking for a teaching job. Birkbeck is my current home but this is an honorary rather than salaried position.
    So, in answer to your very just questions, I was taken in by Keydata and the ease with which this happened made me feel that I couldn’t do this sort of work in future. Do feel free to contact me if you have any further questions. Best wishes Debbie”
    To then see Dr Harrison is once again dabbling in FS having said she was changing career direction and that she has NOT spoken out in any shape or form on the issue of Keydata frankly makes me sick.

  7. Dr Harrison on BBC news at 20.38 mins Is the FSCP a paid post or an honoury one?
    http://www.bbc.co.uk/iplayer/episode/b03ktcgh/BBC_News_at_Ten_10_12_2013/

    Product review by Debbie Harrison, SeniorVisiting Fellow of the Pensions Institute at Cass
    Business School and contributor to the FinancialTimes
    The Secure Income Plan offers private investors attractive income and growth prospects via a
    relatively new asset class – the secondary market in US life assurance products – hitherto only
    available to institutional investors.
    ……
    About the author
    Debbie Harrison is a SeniorVisiting Fellow at the Pensions Institute, Cass Business School, where she is a researcher and the co-author of four landmark pensions reports. Elsewhere she has published a wide range of UK and global retail and institutional finance books and research reports and has been a contributor to the FinancialTimes on pensions,
    investment, alternatives and expatriate issues for 20 years. In addition Debbie is a consultant to major financial institutions and also runs financial training courses for institutions and government departments, including the Department for Work and Pensions, HM Revenue & Customs, and the Office for National Statistics. She is a trustee of the Financial Inclusion Centre, a financial research charity, and she is an adviser to the DWP on pension reform.
    Keydata commissioned Debbie to write this product review. The firm provided technical assistance but she retained editorial control throughout. She is happy to discuss any issues arising from this research and can be contacted at…………..

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