A second 12-month regulatory review of the annuities market to assess whether or not providers are profiteering at the expense of consumer outcomes is to be recast as a subordinate thematic review to a broadened market study that will look at the at-retirement space more generally.
The Financial Conduct Authority announced a shake up of its review of the retirement income market following surprise changes made in the Budget, which will provide greater access to pensions and are expected to dramatically reduce the role of annuities.
Back in February, the FCA reported back on a one-year ‘thematic review’ into annuities which found the market was “disorderly” and that eight out of 10 of those not shopping around - equating to some 130,000 people a year - are potentially missing out on more generous income.
Crucially, the FCA also exposed that providers make more profit from selling annuities to existing pension customers than they do from business sold through the open market option.
It had launched a second market ‘market study’ set to last a further 12 months, which was seeking to examine whether this profit disparity acted as a motive to pricing that causes consumer detriment and assess how competition is working more generally.
The FCA said it has now been split off this work, to be conducted as a standalone second thematic review to report by the end of the year.
The market study will go ahead with revised terms of reference to investigate the wider at-retirement market, specifically looking at the “value for money” offered by various products and how expected product innovation will affect choices for consumers.
As the Budget announced plans for a guidance guarantee, on which the government is currently consulting, the FCA said it also plans to use the review to develop a framework for the impartial guidance guarantee which will be offered to individuals at retirement from April 2015.
Recent studies have exposed a need for this guidance to go further than simply basic information to ensure positive consumer outcomes and, critically, that the reforms do not simply encourage spending and leave more falling back on state support.
The reforms have led to calls from across the intermediary sector for the FCA to revise its approach to at-retirement advice amid claims of an annuity bias for the majority of clients.
The revised terms of reference will mean the study is set to look at:
• competitive conditions across the at-retirement market, based on new consumer research;
• new business models set to launch in the wake of the Budget;
• ‘value for money’ of retirement income products; and
• behaviour of various stakeholders, including how guidance can shape consumer behaviour.
Good and poor practice identified through the annuity review will feed into the market study and will also form part of the evidence-base for the development of the guidance guarantee, the FCA added.
