“Limited” annuity provider panels and the payment of commission to non-advised annuity brokers should be banned to bring the sector into line with the rules for Retail Distribution Review product areas and to ensure fairer outcomes for consumers, a national adviser firm has urged.
LEBC warned the Financial Conduct Authority’s review into the annuity market must “shake up and modernise the industry”. The outcome of the review is expected this month.
Nick Flynn, divisional director for longevity at LEBC, warned that currently too much is left to consumer understanding and it is not “simple and clear cut”.
He said that terminology “needs to be simplified” as it is currently “confusing” and the direct consequence of this is that people accept their existing insurer’s annuity offer without shopping around.
Mr Flynn said: “Without a clear steer the industry will continue to stumble along with consumers paying the price. Consumers should be directed to whole of market advisers; limited annuity provider panels and commission payments should be banned and brought in line with the Retail Distribution Review.”
Yesterday (10 February) Rachel Reeves, shadow work and pensions secretary, was reported as having promised that if Labour wins next year’s election it would make it a legal requirement for the public to seek financial advice or use a non-advised annuity broker before buying an annuity to ensure take-up of the open market option.
In August 2013, the FCA labeled further work into the annuity market as “complex but necessary” as it stepped up its review into annuities consumer outcomes, citing “weaknesses” in the Association of British Insurers’ self-regulated code of conduct.
While the FCA said that it is aware the ABI has taken a “proactive lead” in improving transparency around annuities by introducing its code and through its consultation on annuity rate transparency, many industry figures have intimated this is likely to be insufficient.
The code requires ABI members to provide “clear, timely information” for those approaching retirement by encouraging the customer to consider their options two years before retirement.
Insurers will no longer be able to provide “inertia” communications by simply sending an application form to a customer and must follow this initial communication with reminders six months and six weeks before retirement, detailing options such as combining small pots and shopping around.
The FCA said the code had widespread support, but that many had argued it does not go far enough and does not cover the whole market. The regulator said it will monitor the ABI’s work to assess whether it meets consumer needs.
The regulator is also widely expected to discuss the level of profits made on annuities across the sector, with some commentators describing the poor rates available as being akin to a cartel arrangement.
