I am not the only one to feel underwhelmed by the findings of the Financial Conduct Authority’s thematic review of the annuity market. It has taken a year to tell us what we more or less already knew and it will be another year before we find out what will be done about it.
The FCA has not even started to look at the real structural issues that will need to change before this market is fixed.
There is no mention of whether it is right that annuities are excluded from the RDR or why commission is still payable whether or not people shop around. Or whether the open market should be made the default position.
To be fair to the FCA, these may be conclusions it does not have the power to draw. Politicians are polarised on the issue. Yet it seems to me the separation of decumulation from accumulation is a prerequisite to addressing the open wound that is the annuity system. I would have liked to see the FCA address, in an apolitical way, what that would look like.
There are some things the report, published alongside the review, tells us that can help move the argument on. We now know eight out of 10 could do better by shopping around.
Awareness is high – 91 per cent are aware they can move, but not all know they could get a better deal if they did.
And despite what they know, 37 per cent do not shop around.
There is a nanny state argument to be had here – if everyone knows they can shop around but they choose not to, should we really bother to make sure they do? If the pensions industry ever wants to rid itself of the rip-off annuity headlines, then the answer has to be yes, whether you are a free-market libertarian or paternalist.
Another thing we do not know, despite the FCA’s year-long inquiry, is the extent to which people could have got a better rate on account of their medical history.
So, interpreting the ABI sample annuity tables published last August, we do not know whether there was a single 65-year-old who accepted £839.52 a year non-enhanced annuity from Scottish Widows, Clerical Medical or Halifax when they could have got £1,778.23 a year – more than double – from the Pru on account of their medical condition.
Labour’s idea of an approved broker service puts the open market option at the heart of the process rather than leaving it to the apathetic punter to solve. But for now, perhaps 300,000 people will get a sub-optimal deal before the FCA concludes its review.
Whatever your view on punter inaction, it is hard to object to structural changes that restore trust in the pension brand.
John Greenwood is editor of Corporate Adviser