The FCA’s thematic review can be summed up in a few words – the good, the bad and the ugly.
The good happens to those who take care to shop around before buying an annuity. The bad describes those who buy direct from their pension provider without checking out alternatives paying a higher income. And the ugly is the big problem of small pension pots.
Intermediaries are likely to read the report with interest but very little surprise. After all, retirees savvy enough to shop around the open market for themselves or employ professional help enjoy the best outcomes. Instead this report highlights the plight of those who buy direct and, in four out of five cases, end up missing out on regular income for the rest of their lives.
The FCA’s vision is to make financial markets work well so consumers get a fair deal. Most of us share that vision and actively work to promote it, through initiatives such as the Pick-A directory that aims to demystify and encourage more shopping around.
In fact this review is a tale of two markets, one that tells of the benefits of informed choice and competition and the other highlighting the tragedy of the ‘internal’ market which stacks the odds against the customer.
While we can feel proud of those we do help, it’s also impossible to forget the many – around 3,000 each working day – who are missing out. In fact, if you add back in some of those excluded from the report, such as those retiring with trust-based pension schemes, the figures would look even worse.
Although the FCA has not gone as far as ‘naming and shaming’ any providers, this review will be worthwhile if it prompts some serious rethinking among those who are the target of the criticism.
This is a market that we, as an industry, have had multiple opportunities to clean up and make truly transparent and customer-focused.
Rescuing retirees from poor annuities ought to be the business opportunity of the century. But while some parts of the market have evolved, too many are stuck in the past and happy to keep barriers that allow them to serve themselves ahead of their customers.
The regulator is now likely to take on the role of dragging them kicking and screaming into the 21st Century. We should prepare for major changes, particularly in the mass-market area that has become an advice vacuum in the wake of RDR but is still ripe for technology-heavy, simplified advice services.
This thematic review doesn’t itself change anything and we must now wait for a further market study. The FCA has said it will take immediate action if it uncovers poor sales practices. That needs to include the detriment caused by selling standard annuities to those who qualify for enhanced rates, surely a breach of TCF outcome two which insists products meet the needs of consumers and are targeted accordingly.
In reality, we are probably looking many months ahead before we see any firm proposals. As an industry that relies on reputation and trust, are we happy kicking this can that far down the road?
Stephen Lowe is group external affairs and customer insight director at Just Retirement