The FSA is set to investigate the annuity market due to concerns people are failing to shop around when they reach retirement.
The regulator will today unveil plans to examine pricing data to determine how much pensioners are losing out by not shopping around for a retirement product.
The review is expected to be conducted in two phases.
The first phase will analyse the level of detriment consumers suffer from not shopping around, and whether there are firms or particular groups of consumers where this detriment is more likely to occur.
This will involve a pricing survey of all annuity providers, and will compare the rates available to consumers through a range of distribution channels, including rates available through the open market option and those only available to existing pension policyholders.
The second phase will consider whether firms’ processes for providing annuities facilitate or inhibit shopping around.
FSA head of life insurance Nick Poyntz-Wright says: “The FCA has set out its vision to make sure markets work well so consumers get a fair deal. An annuity purchase is an important one off decision that has long term consequences for individuals if they get it wrong.
“We want to understand the level of the potential detriment for consumers if they do not shop around to see if there are ways to make this market work better for consumers.”
Hargreaves Lansdown head of pensions research Tom McPhail says: “The open market option agenda has always been about improving investor’s incomes and the FSA is right to scrutinise this area of market failure.
“With auto-enrolment under way it is essential that investors get the best possible value from all stages of their retirement saving.”
Providers have been coming under growing pressure from the Government to increase the number of people who shop around.
In response, the Association of British Insurers published a compulsory code of conduct which requires its members to improve the way they promote the open market option.
In November last year, the ABI confirmed it also wants all annuity providers to publish the rates they offer to consumers as part of the code.
ABI director of life, savings and protection Stephen Gay says: “Any review of annuities would be timely. The annuities market is changing with ABI initiatives set to provide people approaching retirement with greater clarity and confidence as they prepare for retirement, and we are pleased that the FSA recognises this.
“With 400,000 people buying an annuity every year, it is vital that we do everything we can to enable customers to make an informed decision.
“ABI members will work with the FSA as it undertakes this project and look forward to its findings.”