They are now pushing for providers of pension accumulation products to ensure that retirees buy their income solution via the external ‘open’ market to boost transparency and competition.
A recent FCA study criticised the annuity market, and suggested the development of a ‘Pensions Dashboard’ which would allow consumers to view all their lifetime pension savings in one place.
The FCA review also found that firms‘ sales practices are contributing to consumers not shopping around and switching, and that significant improvements are required.
The report further addressed the need for consumer support following the pension reforms stating that "the Guidance Guarantee will perform an important role, but firms’ own communications with their customers will remain of central importance".
Stephen Lowe, director at Just Retirement, said:
“The bad practice that afflicts this market would disappear if there was a clean break so that providers of pensions had to compete to hold on to their own customers’ pension money.
“Having seen the choice on offer, customers could still buy from their existing provider if they wanted to but the difference is that it would be an active and informed choice.
“At the moment we have a two-tier market where a minority of informed customers tend to shop around and leave for better deals but a significant number stay where they are, perhaps thinking loyalty will be rewarded. That rarely happens, as the FCA’s report makes clear.”
He agreed with the FCA report that found firms commonly offering poorer deals, relying on customer inertia to boost their own profits, saying that the knock-on effect has been to undermine confidence in the whole market, discouraging retirees from choosing guaranteed income solutions that did offer good value.
Stephen Lowe added:
“The FCA report is just the latest in a series which demonstrates that despite all the attempts to boost shopping around, we still have this two-tier market. It would be a radical move but splitting the pension ‘manufacturing’ from the ‘distribution’ could quickly promote competition where it is most needed.
“Everyone would be free to buy from whichever pension provider they preferred, but it would be an active choice rather than the result of passive acceptance of the first deal they are offered.
“The pension rules are changing but people’s need for income to pay the bills remains the same. In the new pensions era we need to make sure that fact does not get forgotten.”
