Annuity providers will be required to tell their customers where they can get the best rates even if they are available from a competitor, the Financial Conduct Authority has said today (25 November).
The regulator's research found 60 per cent of customers were not switching providers when they bought an annuity and up to 80 per cent of these customers could get a better deal on the open market.
To address this, the FCA’s Retirement Income Market Study recommended that an “annuity comparator” be established to encourage shopping around.
The City watchdog is proposing that this comparator takes the form of an information prompt before an annuity is purchased.
Under the FCA’s proposals firms will be required to deliver information in a personalised form in a format set out by the FCA.
This prompt will have to show the difference between the provider’s own quote and the highest quote available to the consumer from all other providers on the open market.
There will also be a prompt to help the customer access the best quote – this will be a link contained in the information prompt.
It is important that consumers shop around to get the best deal for them.Christopher WoolardChristopher Woolard, executive director of strategy and competition at the FCA, said: “Although sales have declined since the pension freedoms were introduced, annuities still play a significant role in retirement provision.
“It is important that consumers shop around to get the best deal for them - yet our previous work found that very few people actually did so.
“We believe that the proposals we have outlined today will engage consumers and allow them to make better decisions, increasing shopping around and competition across the market.”
Firms will be also be required to give consumers details of whether the annuity is a single or joint life product, whether the rate of income paid by the annuity is guaranteed and the total pot that will be used to buy the annuity.
The regulator tested different information and formats to understand which worked best to encourage consumers to shop around.
The behavioural testing found that when shown the annual increase in income that a consumer could gain from purchasing an annuity on the open market, the testing showed a 27 percentage point increase in the number of participants that went on to compare products from different providers.
The FCA has proposed that the new rules will come into force in September 2017.
It has also announced that it plans to introduce requirements on the providers of retirement income products to provide data to the FCA about the types and volumes of products they are selling.
Since the pension freedoms were introduced in 2015, the FCA has been collecting retirement data from a representative sample of firms on an ad hoc basis.
The consultation proposes to formalise the data that is gathered with firms being required to report this to the FCA.
Chris Daems, director of Cervello Financial Planning, said the fact so many consumers still make a decision which is financially detrimental is surprising but highlights the need for the sort of reforms announced.
But Mr Daems said he wondered whether the proposals announced go far enough in ensuring consumers make appropriate choices.
emma.hughes@ft.com
