The report argued that competition in the market is not working well for consumers. In particular, it highlighted that many consumers are missing out by not shopping around for an annuity and switching providers, and some do not purchase the best annuity for their circumstances.
It added that consumers are put off by the length and complexity of wake-up packs, or because they do not believe the sums involved make shopping around worthwhile, and that they tend to buy products from their existing provider which weakens competition.
The FCA stressed that following the reforms, savers reaching retirement will face "a landscape that is more complex and will need support in making the right choices."
The FCA have now announced plans which would require firms to offer an annuity comparison tool and, in the longer term, to create a pension dashboard which will allow people to see all of their pension information in one place.
The report concluded:
"We want to see firms framing the options available to help consumers make good decisions, rather than to drive sales of certain products. We will also be monitoring the market and tracking consumer outcomes, as well as the take-up of the Pension Wise service."
Andrew Tully, pensions technical director, MGM Advantage, commented:
"The FCA study confirms what many of us in the industry have known for some time, the market is dysfunctional and not enough people are choosing the best retirement income option at the best price. This in part is due to buyer education and too few people accessing advice, but it is also down to provider bias.
"We now need to take clear and quick steps to address the issue. We have made some moves in the right direction, with the introduction of Pension Wise and the second line of defence. We need to look at the pension passport concept and find a way of introducing that sooner rather than later as a first step in the process towards a pension dashboard. And it’s crucial we don’t lose sight of the importance of shopping around, whether that be for an annuity or a drawdown product.
"Just as the world of pensions becomes more complex, consumers need to be provided with as much help as we can provide in making the right decisions. Financial advisers are well placed to provide the level of support consumers will need."
Steven Cameron, Regulatory Strategy Director at Aegon, said:
“We support the development of a Pensions Dashboard as a virtual aggregator, which will allow customers to see all of their pensions in one place. Rather than building a standalone and very costly database, we support a framework, supported by standard messaging, to allow information to be pulled together when needed. Customers are most likely to engage with pensions through their current provider or scheme so it’s vital they can access the dashboard through this route.
“How best to provide a meaningful annuity quotation ‘ranking’ does need further thought and we welcome the forthcoming consultation as a route to fully exploring challenges and solutions.”
Yvonne Braun, ABI’s Director of Long-Term Savings Policy, added:
“Pension providers are committed to providing customers with clear and meaningful information to help them make the retirement choices that are right for them. The ABI has long recognised that the annuity market did not work well for some customers, which is why our members developed the Retirement Choices Code and annuity window service, that have raised awareness and encouraged customers to shop around for the right annuity deal.
“With the incoming pension reforms set to revolutionise people’s retirement options, we share the FCA’s aim of ensuring that customers have confidence they are getting the best possible retirement income for their circumstances. We look forward to working with the FCA on the practical implementation of their remedies.”
