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Folger says public should take on more annuity risk

The FSA is recommending that annuity providers should pass on more investment risk to consumers and take care not to overexpose themselves to guarantees they cannot afford.

Speaking at the Pensions in Crisis conference in London, director (conduct of business standards) Michael Folger urged decumulation product providers to pass on some of the risk in annuity products to individuals.

Folger warned that increased longevity and uncertain equity returns mean annuity providers should increasingly put some of the risk in the hands of consumers in the form of equity-linked annuity products.

IFAs believe that Folger&#39s comments serve as a preemptive warning to the industry to ensure that there will be no failure of annuity products.

Folger said: “It is healthy for the market to start pricing things back to the consumer – witness investment-linked annuity structures – which is designed to put at least some of the risk back on the individual.

“The FSA has a role to encourage the senior management of insurers to keep a grip on their balance sheets and to promote better understanding by the consumer of the risks and benefits of different decumulation products.”

Hargreaves Lansdown pensions research manager Tom McPhail says: “This move marks a discernible shift away from shared risk post-retirement.

“In the same way that individuals share the risk as the shift from defined-benefit to defined-contribution continues, that shift is moving to the annuity area.”

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