The Financial Services Authority’s thematic review on annuities should go much further than comparing annuity rates as it ignores the fact that the best consumer outcomes require customers finding the right solutions, Andrew Tully, pensions technical director for MGM Advantage, said.
While announcement of the FSA’s thematic review into annuities has been met with broad approval from the industry, Mr Tully believes the regulator as “missed a trick”
Mr Tully highlighted that the best consumer outcomes require customers to find the right solutions, adding that the market has seen much innovation and increased choice over the last few years, meaning many more potential options are available.
He said: “Consumers who don’t shop around tend to have smaller funds and don’t use IFAs, and yet, from our research, these are the very people who should be making the most of their hard earned savings.
“The most effective way to improve the market overnight would be to break the link between pension saving and annuity purchase by ending the practice of rolling over maturing pensions into internal annuities.
“It is also disappointing that this review does not include members of trust-based pension schemes. It is crucial everyone approaching retirement is encouraged to shop around for the best deal, and take advice, not just those customers in personal arrangements.”
However, other industry experts believe that the review has come at a good time and will encourage retirees to shop around, others say it places too much emphasis on rates.
Stephen Gay, director of life, savings and protection at the Association of British Insurers, said: “Any review of annuities would be timely. The annuities market is changing with ABI initiatives set to provide people approaching retirement with greater clarity and confidence as they prepare for retirement, and we are pleased that the FSA recognises this.”
He highlighted that ABI members are “on track” to implement a new Code of Conduct on retirement choices on 1 March, “which will ensure that customers are prompted to think carefully about the decisions they need to make“.
Mr Gay said: Several companies are also introducing new products and services to customers at retirement - resulting in more choice and competition, and more help for customers to choose the best option for them.
“With 400,000 people buying an annuity every year, it is vital that we do everything we can to enable customers to make an informed decision. ABI members will work with the FSA as it undertakes this project and look forward to its findings.”
However, Tom McPhail, head of pensions research at Hargreaves Lansdown, warned that although the ABI’s Code of Conduct is a big step forward, it is “flawed in that it could result in insurers performing a very limited shopping around process for their customers”.
He said: “This could result in investors getting a slightly better deal than they would have done in the past, but still not as good a deal as if they shopped around the whole market.”