View more on these topics

Keith Richards: Delivering change in the annuities market


Forget the roses, chocolates and champagne. One of the most anticipated deliveries on Valentine’s Day – in the financial services sector, at least – was the publication of the FCA’s long-awaited thematic review of annuities.

Key among its findings was that 60 per cent of those reaching pensionable age do not switch providers when they buy an annuity. This despite the fact that the FCA estimates around 80 per cent of these consumers could get a better deal on the open market.

The regulator reckons that the aggregate benefits consumers miss out on by not shopping around and switching is the equivalent of between £115m and £230m of additional pension income. If consumers researched the market or, more appropriately, sought professional advice, they could increase their final pension pot by as much as 30 per cent in some cases.

The review also flagged the FCA’s intent to conduct a market study into the wider retirement income market (annuities, income drawdown and alternative products) in order to consider what measures need to be implemented to promote healthy competition. Interim findings will be published in summer 2014, with the final report being issued within the next 12 months.The study made three fundamental recommendations:

  • Imminent retirees must be able to maximise their income
  • They are able to do so at the right time
  • It is possible for them to buy the right type of annuity

Not surprisingly, much market noise has been aimed in the direction of the first of the three, especially given the current low interest rates and thus annuity rates. Arguably, though, the second and third tenets come before finding the best rate and can only be realistically delivered through consumer engagement with professional advice.

The review went on to state that, due to the confusing trade-offs they face, the impact of behavioural biases and a general lack of engagement in pensions and annuities contributes to consumers missing out on the benefits available from shopping around and switching. Many simply do not have the confidence to do so.

Additionally, it highlighted the incentive for providers to retain their existing pension customers, as the estimated overall levels of expected profitability of standard annuity business sold to existing pension customers is more than the expected profitability of annuity business sold on the open market. The differences in retention rates of pensions annuitising with their pension provider vary widely, highlighting TCF concerns. 

In general, groups of consumers affected are faced with lower annuity rates, due in part to the fixed costs of providing an annuity representing a larger proportion financial impact on the customer’s funds.

There is also a lack of access to enhanced annuity rates for some consumers converting with their existing pension provider. 

All in all, then, not the most memorable of Valentine’s Days.

The Personal Finance Society is pushing for greater advocacy of professional advice, including the potential for a focused advice option, as it is the only realistic way to deliver the three main outcomes.

Keith Richards is chief executive of the Personal Finance Society


Ian McKenna: Has True Potential cracked investment micro payments?

It’s frequently said it is far too easy to borrow money but financial regulation makes it far harder to save. A new service launched today gives clients the ability to save on impulse towards the long term financial goals agreed with their adviser. Enabling impulse saving has been seen as something of a holy grail by many […]


‘We are open for business’: Sesame hits back at market rumours

Sesame Bankhall Group has declared itself “open for business” after recent speculation it could be sold or wound down by Friends Life. In an email sent to members this morning, seen by Money Marketing, SBG executive chairman John Cowan refused to comment on market speculation. But he said he was writing to “re-iterate” what Sesame […]


News and expert analysis straight to your inbox

Sign up


There are 2 comments at the moment, we would love to hear your opinion too.

  1. The biggest single problem with the annuities market, and by a considerable margin, is rates. Talk of making the annuities market work better is just trying to remedy the failings of something that, in the current age of low interest rates and relentlessly increasing longevity, is basically no longer fit for purpose. It’s just tinkering at the edges of the much bigger and more fundamental issue.

    So why is nobody calling for an alternative retirement product under which the level of income is not shackled to annuity rates?

  2. Julian – such products exists – we don’t need more products but we do need a change in customer and adviser behaviour so that people take a longer term view of retirement and invest in appropriate policies

Leave a comment


Why register with Money Marketing ?

Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

News & analysis delivered directly to your inbox
Register today to receive our range of news alerts including daily and weekly briefings

Money Marketing Events
Be the first to hear about our industry leading conferences, awards, roundtables and more.

Research and insight
Take part in and see the results of Money Marketing's flagship investigations into industry trends.

Have your say
Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

Register now

Having problems?

Contact us on +44 (0)20 7292 3712

Lines are open Monday to Friday 9:00am -5.00pm