Under the plans, annuity providers will be required to deliver personalised information to clients on the difference between the provider’s own quote and the highest quote available to the consumer from all other providers on the open market.
The move follows research by the financial watchdog that found 60% of annuity customers were not switching providers, even though as many as 80% of them could have gotten a better deal on the open market.
The FCA has proposed that the new rules would come into force in September 2017.
Andrew Tully, pensions technical director, Retirement Advantage, has welcomed the move but fears it “may not be enough to solve the issues with the market”.
“The problems are deep rooted and far too many people continue to receive poor value from their annuity due to the lack of shopping around. Ironically, since the introduction of the pension freedoms, the situation has actually got worse, so we need some radical thinking.
“There are numerous technical issues to overcome in the practical implementation of a comparator tool, not least of which is ensuring annuity rates quoted reflect the individual’s health and lifestyle.
"The good news is the industry was working on an intermediary portal for the secondary annuity market, so perhaps this could be used as a basis for further development.
“Given the secondary annuity market was effectively going to introduce compulsory shopping around, and our research shows two-thirds of pre-retirees would welcome such a move, why not simply introduce a requirement that people need to get a number of quotes before they can purchase an annuity?
“This could be done very simply, and would overnight ensure people get the best value from their savings,” Tully said.
Consumer buy-in needed
Tom Selby, senior analyst at AJ Bell, said that “arming people with information about annuity deals available elsewhere should help redress the competitive balance in the annuity market and hold insurers’ feet to the fire when it comes to pricing.”
But he feels the “effectiveness of this measure” still depends on “the extent to which consumers actually read and react to the information provided”.
Selby added that “policymakers must closely monitor how shopping around figures change following its implementation”.
Lack of competition
Selby continued: “The decision by several major providers to pull out of the open annuity market since the pension freedoms were announced in 2014 raises serious concerns about a lack of competition and the impact this could have on the rates offered to savers.
“The drawdown market is hugely competitive, with firms aggressively competing for new business and consumers able to switch providers easily if they can get a better deal elsewhere. It’s vital for savers that the benefits of competition are also harnessed in the annuity market so this is a welcome move by the FCA.”
Annuities still significant
Christopher Woolard, executive director of strategy and competition at the FCA, said: “Although sales have declined since the pension freedoms were introduced, annuities still play a significant role in retirement provision.
“It’s important that consumers shop around to get the best deal for them - yet our previous work found that very few people actually did so.
“We believe that the proposals we have outlined […] will engage consumers and allow them to make better decisions, increasing shopping around and competition across the market.”