Annuity providers will have to inform their customers how much they could gain from shopping around and switching provider, city regulator the Financial Conduct Authority (FCA) has said.
The new rule, which the FCA plans to enforce from September 2017, is part of the regulator’s Retirement income market study, released today (25 November). It has been formed following the concern that, as consumers, our tendency is to buy products from existing providers rather than shop around, and that this “weakens competitive discipline on incumbent firms and makes it harder for challenger firms to attract a critical mass of customers”.
The FCA hopes that great transparency and competition via an industry annuity comparison tool will lead to better rates and terms for people looking for a retirement deal. Firms may have to provide an illustration to demonstrate the increased income consumers could secure by purchasing an annuity from another provider at a better rate.
There has been some good news recently with annuity rates increasing slightly and, because you’re reading Moneywise right now, we know that you’re more likely to shop around for the best deals than most. However, the FCA says “consumers are deterred from engaging with their options by the length and complexity of wake-up packs”, which are sent out 4-6 months prior to a customer’s planned retirement date.
To combat this, the FCA plans to carry out behavioural trials on their own ‘wake-up packs’ with the aim of presenting the information on what your annuity will provide in a much clearer way, helping all of us make more informed decisions.
“This may not be enough to solve the issues within the market”
Richard Parkin, head of pensions policy at Fidelity International says: “We welcome the FCA’s announcement on giving customers more information on alternative annuity quotes. This should at least open people’s eyes to the fact they could be doing better elsewhere.
“We believe the best way of getting people to shop around is to do it for them. This way you make sure that the first quote that they get to see is always the best available to them and that they can then go ahead without having to go and find help elsewhere.
“Restoring confidence in this important market is essential for all of the pensions industry. Making sure that people always get the best deal would be a massive leap forward in achieving that,” he adds.
Andrew Tully, pensions technical director, Retirement Advantage says: “Any attempt to encourage more people to get better value from their retirement savings is welcome, although I fear this 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.”