I’ve been astonished at the number of people whose reaction to the FCA’s recent review into the broken annuity market was: “We already knew this!”
Strange then that it has been left mainly to the press to address this issue while the industry has for the most part moved as far as it has been forced to but no further?
Eight out of 10 people who do not switch from their current pension provider could get a more generous retirement income yet they do not do so, usually because they have not got a clue what is going on.
Just when they need a friendly chat with someone who can talk in plain English, they are instead swamped in jargon-filled ‘information’ packs.
It is a time when financial advice should come into its own. But many pensions are so small that independent advice is not a practical proposition for either party.
Research by adviser search website Unbiased suggests only 27 per cent of people feel confident about arranging an annuity without advice – yet this is precisely what most people do.
We must wait 12 months for the final competition market study report when the FCA will publish proposed remedies.
In that time a further 420,000 annuities will be sold. If current trends continue 168,000 will be sold to existing customers suggesting more than 134,000 people will be tied into a poor deal.
Further research may provide long-term ideas but we need action much sooner.
Pension minister Steve Webb’s suggestion of a 12-month cooling-off period is a cracker. Most people have many other concerns in the run-up to retirement so sorting out their pension falls off the radar.
Giving them a year to reassess would focus firms’ minds on making sure they got a good deal from day one.
Additionally, the FCA has highlighted its concern over hidden commissions. So why not put the industry on notice that they must end?
Fidelity makes an excellent point when it says that anyone who cannot be honest about such a simple thing as the actual cost is probably not going to be helpful in more complex areas.
Industry, regulators and consumer groups can also work on a standard format for a pensions passport to be issued to every investor helping them to shop around.
The FCA should make it clear that firms which deliberately attempt to mislead consumers will face harsh sanctions.
Pension firms should be forced to tell investors that they could be substantially better off if they take advice or shop around.
The government should allow pensions up to £10,000 to be taken as a lump sum. The FCA has confirmed there is no realistic annuity market at this level.
And let us stop the sale of annuities as a no-risk product. They carry considerable risk and consumers must be made aware of these facts in basic, simple language.