Once upon a time, back in the very early 1990s, a fresh-faced whippersnapper with a portfolio of local newspaper cuttings attended an interview for a post as a Money Marketing reporter.
The editor at the time must have seen something he liked because he offered that person a job. Some 22 years later, slightly less fresh-faced, with a thicker-set figure and a lot less hair on my head, I find myself still writing for this paper.
The key difference is that now, instead of plotting my next step up the media career ladder, I am beginning the process of positioning myself for the moment, hopefully at least another decade away, when I will be making use of the many pension pots I have saved into over the past few decades.
Which helps explain why in the past year or two, ever since potentially being able to annuitise my pension savings to date – and discovering how pitifully small the annual income might be worth – I confess to reading newspaper articles and other media reports about retirement matters with an increased, even avid interest.
More than ever before, I am aware of how much decisions being made in this sphere today will affect my retirement income tomorrow. It also makes the current discussion about non-advised annuities and commission that much closer to my heart.
Last week, the Financial Services Consumer Panel published a report in which it found, according to Money Marketing, “huge differences in commission payments from non-advised annuity services”.
The FSCP examined fees charged by 15 online firms and using the example of a pension pot just shy of £50,000, minus the 25 per cent tax-free lump sum, discovered that the charges involved in buying an annuity ranged between 0.75 per cent and 3.35 per cent.
The variation in actual fees paid was almost £1,000. The panel’s report has come at a critical time in the debate over non-advised annuity sales.
On the one hand, the opportunities for an online service that offers a self-guided approach to buying an annuity are more exciting than ever before.
Many years ago, when I first became interested in internet-related financial services, not only was the technology not available but the parameters within which it might be used were barely understood.
Today, a more sophisticated market exists that could help many online users to research and, subject to all sorts of caveats, make use of that technology to actually buy an annuity.
The problem is that the FCA approach appears to be the same in respect of non-advised execution-only annuity services as it is for buying personal lines insurance. Not only is commission an acceptable form of remuneration but the regulation of firms operating in what is a very new market is based on very much the same principles as for home and contents cover.
Ironically, in the past couple of weeks, following a serious fire at our house, my wife and I have discovered how important it is not just to have buildings insurance but for it to be appropriate to our needs. In our case, the sale was fully advised by a broker.
Be that as it may, the FSCP’s findings have provided ammunition to those who find the prospect of a free-for-all in the burgeoning online market highly disturbing. It feels like a form of Wild West out there, where consumers are ripe for the plucking – and unless something is done soon, some will lose significant parts of their retirement cash.
No wonder that Money Marketing’s group editor Paul McMillan wrote in a column: “The very strange decision to allow commission … on non-advised annuity sales whilst banning it for advice under the RDR is looking even more bonkers.”
The key question is that of what should be done about it. In that regard, it seems there are several issues to be addressed.
First, it strikes me that the huge disparity between online firms in terms of commissions paid is a product of a highly immature market, where charges are dreamed up almost willy-nilly. It suggests the true value of the services offered by online firms and what consumers should pay for them is still being tested.
Second, and equally important, what we are seeing is a failure of appropriate regulation. If a consumer is not able to spot easily the difference between firms charging 3.35 per cent and those charging 0.75 per cent, something is wrong with the way the FCA allows that information to be presented.
In other words, it is not that a transactional charge is bad per se but that it is highly opaque and that the firm applying it is not required to be very clear whether its services are whole-of-market or restricted.
What this implies is that regulation cannot be universal in its application for different segments of the financial market. An annuity is a far more important purchase than car insurance and the FCA should treat it differently.
In exactly the same way as IFAs have long argued for a regulatory premium to apply that takes account of the fact that their businesses are less risky, the opposite should apply with the annuities market.
Only then will we see effective protection for consumers – and a more level playing field for advisers.
Nic Cicutti can be contacted at firstname.lastname@example.org