Response to recommendations by the Financial Services Consumer Panel to increase transparency of non-advised annuity sales and to include an option for advice have ranged from critics saying they are too onerous to those saying they are not extensive enough.
Yesterday, the FSCP reported findings which showed non-advised annuity sales are often marketed as ‘free’ but in fact pay 5 to 6 per cent commission, well above the 1.5 to 3 per cent average. The report also criticised a lack of any requirement to consider the ‘whole of market’.
The panel recommended the FCA undertake a complete overhaul of non-advised sales and introduce a code of conduct that would demand, among other things, that annuity providers be forced to offer an advised service as well as their traditional non-advised route.
Nick Flynn, divisional director for longevity at national IFA firm and employee benefits consultancy LEBC Group, said: “The proposals do not go far enough. Annuities and retirement advice should be treated in the same way as ISA, bonds, or pensions.
He called for standards for non-advised annuity sales to be brought into line with the values of the Retail Distribution Review.
The panel report warned there has been “a significant shift to non-advice in the mass market for annuities” partly driven by the Retail Distribution Review, and that this shift could “undermine the intentions of the RDR” by leaving customers with no choice but to use commission-based services.
Mr Flynn said: “This means no commission and advice should be provided. RDR has effectively created a loop hole for annuities and urgent action is required to insure clients get the best possible retirement solutions.”
However, Alison Richards, head of annuities at price comparison website PayingTooMuch, conversely argued that the proposals go too far and would impose substantial costs on the industry.
She said: “We welcome the FSCP’s annuity review and recommendations for improvements to the sales process as we feel annuitants are often offered a raw deal with rollover terms from their existing pension provider, despite the introduction of the ABI code of conduct.
“We don’t however feel that a transparent, whole of market non-advised service needs to also offer advice, as long as this option is clearly signposted if the annuitant requires it.
“Given the costs involved in providing advice it is unlikely that customers with smaller pot sizes will want to pay the costs of having received advice and would rather stick to receiving information and making their own mind up.”
Andrew Tully, pensions technical director, MGM Advantage said there is still a significant lack of awareness of the potential benefits of shopping around among savers approaching retirement, and that the annuity market as a whole needs a thorough overhaul.
Mr Tully said: “The annuity market is not working as well as it could for many people who retire each year. Too often we see people take the pension with the company they have saved with, without realising the benefits of shopping around, not only for the best rate but also the right shape of annuity, particularly taking into account health and lifestyle.
“Our research continues to evidence a complete lack of awareness and understanding of the options people have when approaching retirement. 43 per cent of the 55-64 age group are unaware of the different products and options to generate a retirement income, while 61 per cent are unaware of the open market option.”
The FSCP report found consumers are increasingly aware of the ‘open market option’ with more than half now shopping around before annuitising, but claimed consumers are faced with a bewildering array of distribution options are that overly complex and that offer little clarity on charges or protection.
