FCA: annuity providers must reveal best open market rates

"It is both unfortunate and disappointing that consumer switching has decreased since the introduction of the pension freedoms and this initiative from the FCA should go some way to reversing this trend."

The move is in response to research which found that 60% of customers were not switching providers when they bought an annuity and up to 80% of these customers could get a better deal on the open market.

In order to address this, the FCA’s Retirement Income Market Study recommended that an “annuity comparator” be established in order to encourage shopping around. The FCA 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

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 FCA has proposed that the new rules will come into force in September 2017.

The FCA 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.

Christopher 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’s 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.”

Philip Brown, Head of Policy, LV= Life and Pensions, commented: “Today’s announcement from the FCA that an “annuity comparator” be established in order to encourage shopping around is very welcome. We have long argued that people should be encouraged to shop around at retirement and seek regulated financial advice to make sure they get the most from their money. It is both unfortunate and disappointing that consumer switching has decreased since the introduction of the pension freedoms and this initiative from the FCA should go some way to reversing this trend.”

Tom McPhail, Head of Retirement Policy at Hargreaves Lansdown, added: “The problem of making it easy for investors to understand the benefit of shopping around and to then act on that knowledge, has vexed policymakers for years. This proposal, to give annuity purchasers a pounds and pence disclosure of how much better off they could be will solve half the problem. The bit still to be dealt with is the fact that 75% of annuity purchasers could get an enhanced annuity and that won’t be reflected in this proposed disclosure. The good news is that the FCA knows is and will soon be taking steps to address that too, through revisions to the pre-retirement ‘wake-up’ packs.”