The FCA is set to ditch the ABI’s shopping around code of conduct after its investigation into the retirement market found providers ignoring the principles of the code.
In its market study published today, the regulator said the code – which sets out how pension providers should encourage consumers to shop around for the best annuities – “has not always been observed by firms in practice”.
A review into annuity sales practises, also published today, found at least one firm that actively tried to block customers from benefiting from the code.
The review says: “One firm in our sample had a strategy that identified the introduction of the ABI Code as a threat to its business model.
“The firm responded to this perceived threat by instigating a programme that seeks to have regular touch points with customers to ease them through the retirement journey, and in so doing attempts to retain them as annuity customers of the firm.”
The code, which was only launched in March 2013, is set to be replaced with the FCA’s own rules following a consultation.
ABI director general Otto Thoresen says: “We have always stressed the value of shopping around and the need for consumers to have the right information about their retirement options, which is why the industry introduced the ABI Retirement Choices Code. Providers recognise that in the new pensions world of greater choice more needs to be done to ensure good outcomes for customers.
“The ABI had urged the FCA to replace our code and we are therefore pleased the FCA plans to develop the code into rules that will apply across the entire pensions market.”
The FCA’s annuity sales review found that firms’ behaviour is contributing to consumers not shopping around for the best deals on the open market. This includes enhanced annuities, where the regulator had its “greatest concerns”, which can significantly boost retirement incomes for people with poor health.
February’s thematic review found 60 per cent of consumers were buying annuities from their existing provider, despite the potential for 80 per cent to achieve higher annuities on the open market.
The FCA says: “A particular area of concern is the enhanced annuities market, and we have seen evidence that this market in particular is not working well for consumers.
“We have found examples where firms are not providing customers with sufficient information about shopping around for enhanced annuities or informing the customer that the firm might not offer the annuity that best meets the customer’s needs.”
The regulator said telephone conversations between providers and consumers in particular failed to highlight the benefits of shopping around and the potential of enhanced annuities.
Firms will be asked to do more work with the regulator to find out whether customers with medical conditions have missed out on better annuity rates since 2008.