The FCA’s plans to force providers to show their own annuity quotations against market rates falls short of creating a truly customer centric model, according to financial services company Just.
The retirement savings manager warned retirees choosing guaranteed income for life may be left worse off unless the FCA strengthens its proposals designed to promote shopping around and switching.
As part of its response to the consultation paper CP16/37 Implementing information prompts in the annuity market, Just suggested the current proposals could create unintended consequences from consumers shopping around and would not prevent customers from incurring a financial loss.
Stephen Lowe, group communications director at Just, said only by using a service that generates a personalised rate that takes into account individual’s lifestyle and medical history can customers be assured they are achieving the best possible outcome.
He said the current proposals put forward by the regulator risk giving consumers a false sense of security that they are receiving the best possible advice.
He said: “The current proposals will, in our assessment, result in a significant proportion of customers believing they are achieving a good outcome when that is unlikely to be true where the comparison is from a firm that does not use industry standard questions on the common quotation form – to generate an individually underwritten quotation.
“The FCA’s previous findings in this area is clear – of those people who purchased an annuity from their existing pension firm and qualified for an enhanced annuity, over nine out of 10 would have got a better deal if they had purchased their product from a provider on the open market.”
Just has shared evidence with the FCA that two in three customers qualify for some sort of medical or lifestyle rate enhancement, and retirement income improves by a quarter if this option is taken compared to a standard annuity.
Mr Lowe called the proposals “not consumer centric” and accused them of being built around the model of the firm rather than the interests of the individual.
This could expose firms to complaints that the best rate offered was misleading, though offending firms could argue that they were adhering to the rules.
In order to motivate consumers to shop around the comparison should show the actual rate available to them rather than a reduced standard rate that is convenient for the provider to display.
Mr Lowe said: “The FCA has delivered some excellent work over the last few years to define the problem and behaviourally test solutions that will encourage more customers to shop around – establishing the basis of comparison to be in the best interest of the customer is an imperative that will determine whether this policy response is a hit or a miss.”
julia.faurschou@ft.com
