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”.