Enhanced annuity providers have blamed pension providers for some poor customer outcomes, stating they simply roll customers into their own annuity products.
Today, the Financial Conduct Authority published its thematic review into annuities.
While it did not find any widespread mis-selling, it was critical of the lack of enhanced annuity sales and blamed providers’ sales practices as one reason why people are failing to use the open market option.
Andrew Tully, pension technical director at MGM Advantage, said poor market practices – primarily people rolling over into the holding pension provider’s own annuity – were something that “many in the industry, including ourselves, have known about and been highlighting for many years”.
He noted that unfortunately the vast majority of people buying from their holding pension provider do not benefit from higher rates through shopping around, and there is typically a 30 per cent gap between standard and enhanced annuity rates.
Mr Tully said: “The changes coming in April next year do not automatically mean better customer outcomes, as the choices at retirement will become a whole lot more complicated.
“My fear is we will look back on these pension reforms in years to come and see that the fundamental problems that exist have not been adequately addressed. People who seek professional financial advice are likely to continue to have the best outcomes at retirement.”
Mark Stopard, head of product development at Partnership, hoped that proposals laid out in the FCA’s retirement income study would facilitate more shopping around at retirement.
He said: “Too often people simply take what is offered by their existing provider as they perceive it to be easier and not overly detrimental to their finances.
“Today’s announcement will encourage people to engage and achieve the retirement income they deserve by making their pension savings more tangible and visible.”
Both Partnership and MGM stressed that as they have no pensions back book and sell via the open market, many of the criticisms within the review did not apply to their businesses.
In a similar position is Just Retirement, who’s group external affairs and customer insight director Stephen Lowe stated that the study reinforces the view of a ‘two-tier’ retirement income market, with a minority making informed decisions while the majority trusted their pension provider and ended up in poor value products.
“Some providers have got away with selling poor value and inappropriate annuities to a captive market for far too long. Unfortunately their selfish actions have tainted the whole annuity market, undermining confidence in both good and bad.”
Jamie Smith-Thompson, managing director at retirement adviser Portal Financial, called the report “damning” in its highlighting of the extent to which consumers have been let down by annuity providers.
“These failings mean it has never been more important to seek regulated advice before making a retirement decision, especially as there will be a far wider range of options for people to consider from April.”
Otto Thoresen, director general at the Association of British Insurers, stated that it has always stressed the value of shopping around and the need for consumers to have the right information about their retirement options.
“The development of enhanced annuities and the ABI Code were both driven by the market to improve customer outcomes and providers are fully committed to the further improvements needed to ensure customers can navigate the new retirement market successfully.
“Customers must be clearly informed about their options, particularly if they may be entitled to an enhanced annuity or other products the industry has developed to meet customer needs,” he commented, adding that the ABI will work with the FCA to build a new system which focuses on customer behaviour.
peter.walker@ft.com
