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 later this month.
Speaking in a debate at the House of Lords last week, 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.”
Age UK head of public policy Jane Vass wants the Government to introduce quality standards for the annuity market.
She said: “We need some form of quality standard for money going out of a pension as well as money going in.
“The Government has missed a trick by failing to pin down this issue. Without a quality standard we remain really concerned that far too many people are sleepwalking into making a poor decision at retirement.”
Hargreaves Lansdown head of pensions research Tom McPhail continued his push for reform to trivial commutation rules. He has previously urged the Treasury to split defined benefit and defined contribution trivial commutation.
He said: “I would like to see the trivial commutation rules reformed to provide a simple, attractive and accessible alternative to annuitising for small pension pots.
“A standalone DC exemption would one way to go but we need to have a debate on this issue.
“I would also like to see the Pica directory of annuity brokers embraced by the industry. We now have a population of intermediaries, subject to minimum standards, to whom investors can be directed if only we can prize them away from their existing provider.
“For that to happen we need regulatory change.”
But 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.”