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FCA finds ‘smoking gun’ in annuities review

The FCA has found a “smoking gun” in its review of the annuity market after quantifying the scale of consumer detriment caused by market failure, Money Marketing understands.

The regulator’s review of the annuity market, which began in January last year, set out to discover the extent to which customers are losing out from not shopping around, and whether there are firms or particular groups of consumers where this detriment is more likely to occur.

In addition, the FCA has looked at whether firms’ processes for providing annuities facilitate or inhibit shopping around.

A source close to the review says the FCA has identified how much consumer detriment is being caused by the annuity market “not working properly”.

The source says: “The FCA have found a smoking gun, although they won’t identify the fingerprints on the trigger.

“They have quantified the scale of consumer detriment from the market not working properly.

“They are going to come out with numbers and they are going to identify that consumer purchasing patterns are not where they should be, so people are not making good buying decisions.”

The FCA has also investigated annuity broking websites following criticism of this market by the Financial Services Consumer Panel.

The source says: “The FCA has done a study of annuity pricing looking at the manufacturers and they have also been looking at annuity broking websites. Clearly as we saw from the FSCP report it is a mixed bag in that space.

“What the FCA won’t do is reach any firm conclusions about where to go next, so it will take a long time before we get anywhere with any of this.”

The findings of the FCA’s thematic review are due to be published later this month.


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There are 8 comments at the moment, we would love to hear your opinion too.

  1. I’m probably missing something here, but surely every IFA has advised clients about the merits of “shopping around for the best deal” didn’t that used to be the main point of being an IFA? (or going to one). So it should hardly come as a surprise to the regulator that shopping around is going to be better for clients. If Providers are guilty of not making this clear in their literature, this is entirely the fault of the regulator who determines what goes into it.

    The only issue that the regulator has therefore to investigate is whether annuity rates are basically fixed in a quasi cartel that prices together…. that surely can be the only logical “smoking gun” or have I missed something about the review entirely?

    Every IFA knows that better deals can be found by checking the entire market for annuities (and obviously giving proper consideration to enhanced annuities).

    I make the point, because should this turn into yet another mis-selling fiasco, we all need to agree where the responsibility lies and it isn’t with advisers.

  2. I would agree with the comments above to a point but is he 100% certain that advisers haven’t just used the provider paying the biggest bucks? There are networks out there with a restricted proposition that exclude certain companies that figure highly on the enhanced annuity tables I look at. Maybe, this is also to the detriment of the consumer? Time will tell.

  3. @Dominic, i agree. It is a regulatory requirement for annuity quotes from existing providers to state that better rates may be available by utilising the OMO. The regulators issue can then only be with exactly how this is communicated, should it be highlighted more within the illustration etc.

    Half of the problems that the regulator believes are ‘market failures’ can be solved (to the best of the industry’s ability) by having some sort of standard format for annuity illustrations, investment illustrations etc. If all paperwork from providers looked the same consumers would have a better chance of being able to decide which is the best deal. In my opinion this is what the regulator is for, ensuring that what needs to be communicated to the public is done in a clear and transparent manor that promotes the ability to compare providers. After that what rates are offered or charges levied is up to the individual provider.

    Having said that, if it is plastered all over an illustration that the OMO may result in better rates and therefore a higher retirement income and a consumer decides not to enact their OMO who’s problem is that? You can lead a horse to water but…………………………………….

  4. Lets not blame all companies … I run a small IFA office in small village. To assist the community I offer a photocopying service .. Pre RDR days … I had a lady come in asking if I could photo copy some forms .. it was plainly pension option forms. When I asked if she had spoken to anybody and sought advice about her options and particularly the open market option and the possibility of obtaining a higher income .. she replied that she had read about it in the documents the company had sent her … but decided not to go down that route ,, despite me telling her that it might not even cost her anything .. but the benefits could be much higher than what her existing provider would pay … and even if she didn’t want to talk to me about it .. she should perhaps contact another IFA … Her reply … No I am not interested …
    What is it they say … You can lead a horse to water !!!!

  5. @ James, if any advisers have been selecting annuities or any other product based purely on the amount of commission that they earn, then there is a genuine problem if they are unable to justify their advice, which presumably would be a case by case review rather than a blanket “annuity mis-selling” tidal wave. However there are weird instances where an annuity might pay out a few pennies more to the annuitant (literally pennies) yet the commission is a fair bit higher. I think that is possible for advisers to justify actions in this sort of scenario, providing that there has been some genuine discussion about fees/commissions/charges with the client.

    However if you are right about a systematic “panel” based on commission, then clearly there are issues…. why the heck don’t people learn not to do this?!!

    @awc & @nick…. sadly yes one cannot make the proverbial horse drink. I feel a line from Coriolanus coming on…

  6. They might have found a smoking gun, but when are they going to wake up and find the smoking Howitzer? Temporary annuities with so called guarantees are being flogged by many of the annuity providers.

    Without making dramatic assumptions about future rates or health, just crunch the numbers and tell me if they make sense? Ask what are the margins on an ordinary annuity compared with one of these other types and I think the motivation will become clear. Unfortunately in spite of the Regulators attempts of engendering clarity there is still a fog surrounding these products.

    When they have found that perhaps they might look at the Mortar Bombs of Equity Release.

  7. In addition to the focus of this review the Regulator must acknowledge that while there are bad practices within annuities, the top products supported by good advice will lead to exactly what the right individuals require.

    With this in mind, the Regulator should be mindful that any soundbites provided to the general press do not further tarnish either annuities or the advice profession.

  8. The regulator has failed (yet again) by not grasping the bull by the horns and having mandated shopping around as the default option. The only annuities providers should be permitted to quote are those based on GAR’s. Smoking gun? More like a typically smoking pile of dung at Canary Wharf.

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