Pensions  

FSA review could boost open market option

The FSA’s annuities review could boost the open market option, but the regulator must look beyond price, members of the Pension Income Choice Association have warned.

Speaking after the FSA announced a thematic review of annuities last week, Steve Lowe and Andrew Tully, both board members of Pica, said the FSA scrutiny would complement rules being introduced in March as part of the Association of British Insurers’ code of conduct.

In its statement, the FSA said it had been in discussions with the insurance industry about a thematic review of annuities for a while, and said it would take into account the ABI’s code of conduct, which Pica helped construct.

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The FSA’s review will be carried out in two stages: the first will explore consumer detriment from not shopping around; the second will examine firms’ processes for facilitating the open market option.

Mr Lowe, group external affairs director for Just Retirement, said: “The FSA review helps bring more weight to the speed and direction of the code.”

However, speaking on behalf of his business, Mr Tully, pensions technical director for MGM Advantage, said he was concerned that the FSA review would only focus on pricing and also that it excludes trust-based schemes.

He said: “The FSA has missed a trick by focusing on rate, we would like the review to go much further. Looking at rates ignores the fact that the best consumer outcomes require customers finding the right solutions.”

BACKGROUND

Stephen Gay, director of life, savings and protection at the ABI, 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.

Joanne Segars, chief executive of the National Association of Pension Funds, said: “At the moment, consumers are dealing with an unfair and opaque system that is preventing too many of them from securing a decent income for their old age.”

ADVISER VIEW

Tom McPhail, head of pensions research for Bristol-based Hargreaves Lansdown, said: “This announcement serves notice to any insurance companies that are not looking after their customers that the regulator has its eye on them.”

The ABI code of conduct, to be implemented in March, said providers must:

■ Prominently highlight enhanced annuities and the much higher income they can potentially offer, and inform customers whether they offer these products, and how to find out who does.

■ Clearly signpost customers to advice and support, both from regulated advisers and government-backed advice organisations.

■ Establish transparency in the annuity market so that customers have a clear picture of how individual providers’ product offerings fit in with the wider market.

The ABI code of conduct, to be implemented in March, said providers must:

* Prominently highlight enhanced annuities and the much higher income they can potentially offer, and inform customers whether they offer these products, and how to find out who does.

* Clearly signpost customers to advice and support, both from regulated advisers and government-backed advice organisations.

* Establish transparency in the annuity market so that customers have a clear picture of how individual providers’ product offerings fit in with the wider market.