The key finding from the FCA’s annuities review, that consumers could get a better deal by shopping around, should surprise no-one.
The regulator found 80 per cent of people would be better off if they switched provider when annuitising. Savers with small funds or those entitled to an enhanced annuity are particularly at risk.
The FCA review highlighted the big incentive for insurers to prevent shopping around as business sold to existing customers is more profitable.
An investigation into insurers’ sales and retention practices will form part of a year-long review of competition in the annuities market.
Whilst it is frustrating that it has taken the financial regulator so long to begin to address the huge problems in the annuity market, it is obviously worth taking the time to get these much needed reforms right.
That said, the regulator and the Government must be conscious of the thousands the people who may retire with inferior retirement incomes before any new rules are implemented.
They have been bombarded with sensible suggestions for reform.
Some would require new rules or legislation; such as banning commission from being paid to non-advised annuity brokers or ensuring savers are defaulted to an independent shopping around service. Others, such as cracking down on misleading annuity comparison websites, should be simple to address through new guidance and tough penalties.
In this week’s issue we report on an interesting plan floated by pensions minister Steve Webb to allow people with small pots to convert their fund directly into extra state pension, rather than being left to get a poor deal from the few providers willing to take their business.
Elsewhere, advisers are pushing for a ban on commission deals between insurers, a move which would help alleviate concerns about providers milking “hidden fees”.
There is also plenty more insurers could be doing, rather than waiting for regulatory action. The ABI could take forward the idea of a pensions passport to simplify the information received in the run-up to retirement and aid shopping around.
The FCA’s annuities review proved beyond doubt the scale of the market failure which has led far too many people to receive less than they deserve in retirement. Every day more and more retirees are losing out.
Whilst it is imperative these reforms are properly thought through rather than rushed in to quell the growing headline inches devoted to rip-off annuities, the clock is most certainly ticking.