Pension providers should be forced to compete for their customers’ retirement business on the open market, Just Retirement says.
The enhanced annuity provider says yesterday’s FCA report into the annuity market and sales practices proves a “two tier” market exists where the majority of people miss out on the best deal because they simply purchase products from their existing provider.
Currently providers have to alert their customers that they can shop around on the open market but they are not compelled to use it.
Following the market study, the regulator is planning to force firms to show customers how their annuity quotes compare to other providers on the open market.
Just Retirement group external affairs and customer insight director Steve Lowe says: “The bad practice that afflicts this market would disappear if there was a clean break so that providers of pensions had to compete to hold on to their own customers’ pension money.
“At the moment we have a two-tier market where a minority of informed customers tend to shop around and leave for better deals but a significant number stay where they are, perhaps thinking loyalty will be rewarded. That rarely happens, as the FCA’s report makes clear.”
The FCA report also said for people with average-sized pension pots “the right annuity purchased on the open market offers good value for money relative to alternative drawdown strategies”.
Lowe says forcing all providers to compete on the open market “would be a radical move but splitting the pension ‘manufacturing’ from the ‘distribution’ could quickly promote competition where it is most needed”.