South Bank University has spent £20,000 to build a fake pub in order to investigate our relationship with alcohol, using students as guinea pigs.
While I applaud the commitment to robust methodology, it is about as pointless as (though less expensive than) the FCA annuity research which, after a year of effort produced a report which tells us hardly anything new.
Advisers we have spoken to tend to agree.
The FCA’s report says: “The FCA is concerned that providers may be incentivised to prevent consumers from shopping around because they make more money from existing business compared with open market business.”
No kidding. Of course, there is an incentive to retain your customers and not actively encourage them to go talk to the competition!
Now I know that is a tad reductive and poor sales practices should absolutely be rooted out but show me another industry where there is a statutory obligation for the incumbent business to ensure its customers engage with the rest of the market before choosing to remain a customer (or not).
Me: “Hello Mr hairdresser, I would like to book in for a haircut next week.”
Mr hairdresser: “Well Phillip, I can’t make that booking for you until you can demonstrate that you’ve checked out all the other local barbers first because, you never know, they may have a better deal… give us a call if not.”
The FCA estimates that 80 per cent of those purchasing an annuity from their existing pension provider would benefit from switching to the open market. Probably (to give it the Carlsberg caveat) a similar proportion of weekly food shoppers could also save a few quid. In any reasonable world, though, it is the consumers’, the advisers’ and (if they want it to be) the regulator’s responsibility to encourage active shopping around. It is not the providers’ responsibility.
The FCA’s stance is the opposite, encouraging pension providers to “take the initiative” in reforming the annuity market – which is a moot point because it does not look like they will have a choice given the impending study will “include a supervisory element looking at pension providers’ sales of annuities to their existing customers”.
Arguably the most telling point is that providers selling poor-value products over the years have been able to exist, let alone thrive. In most markets you just cannot get away with it, which says more about the state of the industry than anything else.
More positively, the spotlight does present a huge opportunity for providers able and willing to position themselves as the vanguard for value. Viva la (r)evolution!