Annuities to be reviewed by financial watchdog as 150,000 found to be losing out each year by not shopping around

14th February 2014

img

The Financial Conduct Authority is to investigate the annuity market having found that as many as 150,000 customers are not shopping around each year and getting a poorer value pension for the rest of their lives.

Four fifths of those purchasing an ordinary annuity from their existing pension provider could benefit from shopping around. The number rises to 91% for those who potentially qualify for an enhanced annuity.

The research found that someone purchasing a standard annuity could increase their income each year by around £67 a year or 6.7% on average by shopping around. Those who qualify for an enhanced annuity could have benefited by £135 or 8.3% on average by shopping around.

Out of 22 pension firms surveyed, the FCA also found that only ten actually offered in-house enhanced rates.

The financial watchdog estimates that those who could have obtained an enhanced annuity but take an ordinary annuity from their provider lost out by between £110 to £175 a year. The FCA estimates that around 150,00 could stand to benefit each year.

However it notes that were all these people to shop around it might have an impact on the best rates so these groups might not necessarily secure the best rate as a result.

It says the saving accruing to the pension industry is between £115m and £230m though more accurate calculations may not be possible because profitability of annuities is difficult to judge because they remain in payment for such a long time.

The watchdog is now launching a market study of the retirement market to look at ways to deal with the issue. But some specialist providers are concerned that a market study does not go far enough nor fast enough.

Andrew Tully, Pensions Technical Director, MGM Advantage commented: ‘The FCA review doesn’t go far enough, or act quickly enough. This will potentially leave many thousands of retirees high and dry when navigating the annuity minefield.

‘So often we see poor consumer outcomes through a lack of awareness or understanding of the options available. Although the review puts the spotlight firmly on the issues that need to be addressed, another year or two of customers sleepwalking into retirement is simply not good enough.

“There are some simple and practical steps we can take now to help those people looking to take benefits from their pensions. This could be done in tandem with the competition market study which will take some time.”

Tom McPhail, Head of Pensions Research “The FCA has confirmed what many independent observers have known for years: The retirement income process only works well for the minority of investors who fight their way out onto the open market and engage with a good quality broker; the problem is that the majority of investors aren’t finding their way through to these good deals.”

“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.”

Results: These figures were compiled after a year-long FCA probe.

 

In a separate study, the FCA found that online annuity websites may be providing customers with confusing information or failing to disclose full information such as disclosing what they earn a Financial Conduct Authority study has learned.

The FCA uncovered concerns about the information provided on all 13 websites investigated. As a result, it is consulting on new guidance in a bid to raise standards.

The FCA says: “All of the websites we reviewed raised concerns. Key information and risk warnings were often missing or insufficiently prominent.

“Importantly, we also found that information on 12 of the 13 websites did not satisfy the key requirement to be fair, clear, and not misleading, for example describing the service as ‘free’ when commission would be received by the firm.”

 

1 thought on “Annuities to be reviewed by financial watchdog as 150,000 found to be losing out each year by not shopping around”

Leave a Reply

Your email address will not be published. Required fields are marked *