The FCA will force annuity providers to tell customers how much they can gain from shopping around.
The regulator will set down a format under which providers will need to give customers personalised information on their options.
Providers will need to show how much the highest quote available on the open market differs from their own and offer customers a prompt to access the best quote through a link in the document.
Announcing its plans today, the FCA said that its research had shown 60 per cent of annuity customers failed to switch providers when they bought one, despite an estimated 80 per cent having a better deal available to them.
FCA director of strategy and competition Christopher Woolard said: “Although sales have declined since the pension freedoms were introduced, annuities still play a significant role in retirement provision. It’s important that consumers shop around to get the best deal for them – yet our previous work found that very few people actually did so.
“We believe that the proposals we have outlined today will engage consumers and allow them to make better decisions, increasing shopping around and competition across the market.”
The FCA – which is also mandating providers tell consumers if their annuity is a single or joint life product, if the income rate is guaranteed and the size of the total pot used to purchase the annuity – is planning to introduce the new disclosure requirements in September 2015 after testing showed a 27 per cent increase in how many consumers may compare different providers as a result.
Group communications director at Just Retirement Stephen Lowe says: “The failure of some providers to explain the benefits to consumers of shopping around when purchasing a guaranteed income for life product has been a longstanding problem. The FCA is taking positive steps to address this problem but we think there is a strong case to go further and make it a requirement for all purchases to be made via the open, external market to ensure consumers get the best deal.”
The number of open market options available to consumers has decreased in recent years. According to Hargreaves Lansdown, six providers have withdrawn from offering the open market option since pension freedoms were announced. LV= also pulled its enhanced annuity offering earlier this month.
The Association of British Insurers said that providers “fully support efforts to encourage savers to shop around” and would provide the FCA with “helpful feedback on how to make the plans work successfully for customers in practice.”