In response to the study published today, the Financial Services Consumer Panel has called for an overhaul of the annuities market.
The report follows findings from a thematic review conducted in February this year but which was also published today, which found that that 60% of consumers were not switching providers when they bought an annuity. This is despite the fact that around 80% of these consumers could get a higher income on the open market.
Recommendations from the Financial Conduct Authority (FCA) include ensuring firms make quote comparisons clear to consumers, and implementing a “pensions dashboard” which would allow individuals to view all their lifetime pension savings in one place.
The authority has also recommended replacing the Association of British Insurers (ABI) code – introduced in March 2013 to ensure providers made the options clear to pension savers – with regulation, because the code of conduct was being ignored by providers.
The regulator has asked for views on its findings in order to decide whether any changes are needed.
“We want to see firms improving the way they communicate with their customers” said Christopher Woolard, director of policy, risk and research at the FCA. “In order for the pension reforms to work and for people to have trust and confidence in the products they are buying firms need to act now.”
The study said some providers require “significant improvements” to “the quality of conversations” between firms and customers about their wider retirement income options prior to the pension reformation in April 2015.
Identifying future risks in relation to changes to the pension rules was also a component of the market study.
“Fix detrimental sales practices”
In response to the study, the consumer panel has said the FCA needs to “take action to address the persistent problems in the annuities market”.
Panel chair, Sue Lewis, said: “The pensions freedoms announced in the Budget earlier this year underline the need for all products which generate retirement income to work in consumers’ best interests.
“Annuities will continue to be right for some people. The FCA needs to fix detrimental sales practices in this market before more damage is done.
“We urge the FCA to implement our recommendation to embed in its rules a code of practice for firms offering sales on a ‘non-advice’ basis. Today’s findings confirm the need for binding standards.”
