The FCA is being urged to crack down on pension providers after the regulator’s annuities thematic review raised concerns about a lack of competition in the market.
The FCA’s thematic review, published today, reveals 80 per cent of people who buy an annuity from their existing provider would be better off if they shopped around and switched provider.
The regulator has also warned that providers may be incentivised to prevent consumers from shopping around. A review of 10 firms’ annuity books found business sold to existing customers is more profitable than business sold through the open market option.
The FCA will now undertake a 12-month competition study to determine what actions are needed to fix the market.
Annuity Direct chairman Alan Higham says: “The first step the FCA must now take is to ensure insurance companies cannot sell badly priced annuities to their own captive customers without being able to clearly show that their customer made an informed choice to deprive themselves of thousands of pounds of income in retirement that they can ill afford to lose.
“The FCA should enforce its existing rules that firms selling annuities to their clients must be able to show that they provided sufficient information to make an informed choice.
“It is simply not good enough to say we sent out a pack that had all the information when clearly customers were making choices that were consistent with a total lack of understanding of the issues.”
Hargreaves Lansdown head of pensions research Tom McPhail says: “Insurance companies have been the principal culprits in selling poor value products over the years and annuity brokers are working towards adopting minimum standards in how they deal with their customers.
“This is an opportunity for the FCA to initiate a fundamental rethink on how we help millions of investors to get the best value from their retirement savings.”
Association of British Insurers director general Otto Thoreson says the industry needs to do more to encourage customers to shop around when they reach retirement.
The trade body has already attempted to improve industry practice through its compulsory ‘Retirement Choices’ code of conduct.
Thoreson says: “We recognise that our industry can do more to make the market work effectively for customers which is why we are finalising a new package of measures to enable people to engage and to shop around for better deals.
“This would include ensuring customers have the right to a conversation to help them understand the difficult decisions at retirement; and how all customers can get a comparison of rates.”