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FCA urged to intervene in ‘uncompetitive’ annuity market

The FCA is facing growing pressure to fundamentally overhaul the way it regulates the annuity market to ensure people get a good deal when they reach retirement.

Scrutiny of annuity providers has ramped up over the last 12 months, with Aviva UK Life chief executive David Barral accusing rivals of “exploiting inertia” by not offering consumers access to an enhanced annuity.

The FCA is due to publish the findings of a thematic review of the annuity market next month.

Speaking in a debate at the House of Lords this morning, Just Retirement group external affairs and customer insight director Steve Lowe said it is “abhorrent” that insurers are allowed to sell standard annuities to people with health problems.

He said: “The FCA sit on a regime called ‘treating customers fairly’. But how can it be treating customers fairly for a life insurance company to sell a standard annuity to a customer that is in poor health?

“That is abhorrent and the regulator has not acted appropriately to stop that happening. It would be fairly simple for the FCA to force providers to do this.”

Annuity Direct chairman Alan Higham said the regulator should intervene to stop providers selling annuities at uncompetitive rates.

He said: “There is no doubt in my mind that the annuity product, when looked at in isolation, is entirely fit for purpose, but there are a huge number of environmental factors that mean it doesn’t work for consumers.

“The FCA needs to say providers cannot sell an annuity to somebody at 20 per cent below the going rate. That is plainly not suitable and we need a rule that means if a provider isn’t competitive, it cannot sell annuities.

“Once that is fixed, we need to make sure the expert help that people get at retirement is fit for purpose, It is not at the moment across the industry – there is lots of good, but there is bad as well and the industry needs to fix that.”

However, former Treasury financial secretary Mark Hoban suggested the industry, rather than the FCA or the Government, should shoulder responsibility for reforming the market.

He said: “The industry has taken some very timid steps on improving the open market option but we need to think through the consequences of these changes carefully.

“If we have to rely on regulators to fix this problem then it says something very sorry about the industry.”


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There are 3 comments at the moment, we would love to hear your opinion too.

  1. Fair is a very subjective term. Is it fair to expect a customer who has eaten well, exercised and never smoked to cross-subsidise one who has carelessly lived to excess? Annuities were designed to pool mortality risk, a concept that enhanced and impaired annuities dilutes.

    Providers offering uncompetitive quotes may have other reasons for pricing high – they may be profiteering but equally may just not want the business at that point in time. Best buy annuity tables are available in money sections of many newspapers to help customers avoid these providers. The ABI code of conduct for wake-up letters clearly signposts customers to shop around – should we have to legislate for customers will not read a three page letter and exercise their right to OMO?

  2. I think abhorrent – meaning repugnant and loathsome- may be an exaggeration had it been used by an impartial commentator. That it is used by someone with a clear self-interest makes it more than a little opportunistic. Having seen the healthy profits that both JR and Partnership have wooed the City with, there is an argument to suggest that their customers could benefit from less profiteering of misfortune.

  3. Perhaps at the FCA’s forthcoming appearance before the TSC, Andrew Tyrie might care to ask why the regulator has failed persistently to take action on this issue. Such a failure must surely be tantamount to regulatory negligence. For heaven’s sake, the solution is so simple:-

    1. Prohibit providers from providing any annuity figures other than those based on potentially advantageous GAR’s (adding also that whilst these GAR’s may well be potentially advantageous, that doesn’t automatically mean they’re the best or most suitable) and

    2. Intruct that those approaching retirement must be properly informed of the importance of seeking WoM advice to ensure they’re directed to the most suitable and the most suitably structured retirement income product on the most attractive terms.

    Why hasn’t the FSA/FCA done this? Perhaps the problem is that it would be simple and, as we’ve seen time and time again, if there’s a simple way to achieve something and another that’s anything but, the regulator so often seems to choose the latter.

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