FSA to review the annuity market

Old couple

The Financial Services Authority (FSA) will today announce a review of the pension annuity market to find out if consumers are being treated fairly.

The Department for Work and Pensions and the Pensions Regulator have expressed concerns about the lack of information given to people about the rights to shop around for an annuity - the so-called open market option.

Personal pension providers are required to inform their customers that they have the right to choose the best annuity for them from the open market. However, only around 40% of customers actually shop around for the most competitive rate so many pensioners are not receiving as much retirement income as they could.

The FSA review will look into pricing and communication across the annuity market to find out if customers are being made aware of their options.

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Market failure

Tom McPhail, head of pensions research at Hargreaves Lansdown, says: "The open market option agenda has always been about improving investors' incomes and the FSA is right to scrutinise this area of market failure.

"With auto-enrolment under way it is essential that investors get the best possible value from all stages of their retirement saving. Important steps are already being taken to improve the open market option sector.

"However, this announcement from the FSA serves notice to any insurance companies which aren't looking after their customers that the regulator has its eye on them."

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