"80,000 people a year are still buying an annuity, fewer companies are competing on the open market and fewer investors are shopping around."
The provider believes that competition failures are increasing as annuity providers withdraw from the open market.
Since the introduction of pension freedoms, the open market has lost six providers, including Standard Life who announced yesterday that it had pulled out of the market.
FCA research found that 80% of annuity purchasers could get a better deal by shopping around. The average increase in income available was 6.8%, however evidence from Citizens Advice shows that more than half of annuity purchasers are still not shopping around.
Based on the ABI annuity window data, the difference between the best and worst annuity rates was typically around 20%.
The FCA is looking at improved disclosure at the point of retirement to encourage investors to shop around however it is also important annuity providers are subject to external scrutiny. The resumption of the annuity window would help achieve this.
Tom McPhail, Head of retirement policy at Hargreaves Lansdown, commented: “The ABI introduced annuity rate tracking because of concerns about market competition, they then quietly dropped it after pension freedom, arguing most investors weren’t buying an annuity any more. However 80,000 people a year are still buying an annuity, fewer companies are competing on the open market and fewer investors are shopping around. Unless decisive action is taken quickly, in a few years’ time insurance companies are going to be looking back at another misselling scandal, wondering how it all went wrong yet again.
“We are calling on the ABI to reintroduce the public tracking of annuity rates, with all providers being required to participate, especially those which no longer compete on the open market. If the ABI doesn’t respond on behalf of the industry then we’d like to see the FCA take regulatory action.”
