The regulator’s long-awaited thematic review into annuities does not “go far enough or act quickly enough” and “emergency measures” are required to immediately address profit imbalances that leave more than 130,000 retirees a year worse off, annuity experts have said.
The FCA’s year-long thematic review into what it described as the “disorderly” annuities market, published today (14 February), found that it is “not working well for consumers”.
It is now launching a further “extensive” 12-month competition probe into annuities after uncovering profit imbalances at the heart of a sector in which more than 80 per cent of those who do not switch provider - more than 130,000 retirees each year - could get a better deal.
Most experts welcomed the FCA’s review and its findings that many consumers are worse off, especially those that would qualify for an enhancement to their income or that have a small savings pot.
However, several railed against the FCA for setting aside a second year to conduct a further study and argued in favour of immediate action to address the issues raised.
Andrew Tully, pensions technical director at MGM Advantage, said: “The FCA review doesn’t go far enough, or act quickly enough. This will potentially leave many thousands of retirees high and dry when navigating the annuity minefield.
“So often we see poor consumer outcomes through a lack of awareness or understanding of the options available. Although the review puts the spotlight firmly on the issues that need to be addressed, another year or two of customers sleepwalking into retirement is simply not good enough.
“There are some simple and practical steps we can take now to help those people looking to take benefits from their pensions. This could be done in tandem with the competition market study which will take some time.”
Stephen Lowe, group external affairs and customer insight director at Just Retirement, said: “Clearly there are opportunities for the FCA to act now without gathering more information.”
He highlighted that the FCA’s existing Treating Customers Fairly ‘outcome two’ requires product providers to make sure products brought to market are targeted appropriately for the right audience.
Mr Lowe said: “If a consumer tells [a product provider that] they have a health issue but are sold a standard annuity, that’s not in the FCA’s rule book for TCF. Emergency measures must be put in place to stop bad practice taking place.
“There needs to be put in this immediate action to say you must do some basic underwriting and you can’t just flog a standard annuity.”
Andrew Megson, managing director of retirement at Partnership, agreed, adding: “Getting quotes from a variety of providers and finding out if they are eligible for an enhanced annuity should be part of everyone’s retirement planning.
"The financial services industry needs to provide [consumers] with options and opportunities to do this as easily as much as possible.”
Hargreaves Lansdown’s analysis of published annuity rates has established that the average potential income uplift for someone on the lowest internal annuity rate compared to the best rate they could get on the open market is around 20 per cent. In extreme cases the difference could be in excess of 100 per cent.