FCA reveals final annuity comparison rules for intermediaries

The FCA has today set out its final rules which require firms to inform consumers how much they could gain from shopping around and switching provider, before they buy an annuity.

Related topics:  Retirement
Rozi Jones
26th May 2017
FCA
"These regulations are built around behavioural nudges yet the prompt to try and secure an enhanced annuity reads very much as though it is bolted on as an afterthought."

Research carried out in July 2016 suggested that an information prompt comparing available quotes should significantly increase shopping around.

The research also found that a specific form of information prompt was most effective. The largest increase in shopping around occurred when consumers were shown a personalised communication that showed the amount, as annual income, that they could gain from shopping around and switching.

The FCA rules will therefore require the inclusion of a clear and prominent warning about enhanced annuities, which firms will need to implement by 1 March 2018.

The proposed rules required firms to include, in a prescribed format, the following information:

- the amount used to purchase the proposed annuity
- whether the annuity is single or joint life
- whether payment is in advance or in arrears of the start date
- whether the income paid by the annuity is guaranteed for any period
- whether the income will increase in line with inflation or some other specified rate
- the provider’s own quote, and
- how to shop around (the phone number and URL for the Money Advice Service)

The FCA clarified that where a consumer uses an intermediary firm that sources annuities from the whole market, "the consumer is likely to be quoted the best rate available on the market".

However, where the intermediary firm does not have access to every rate available, consumers must be made aware of this so they can shop around more widely if they choose to do so.

The FCA added that "where the quote presented by the intermediary firm is the highest available to the consumer, we consider that the consumer would also benefit from receiving confirmation of this".

The regulator also clarified that where an intermediary is used by a consumer, the firm is able to rely on the information prompt given by the annuity provider, if it is satisfied that it is appropriate to do so.

The FCA doesn't plan to extend the scope of the rules to require that the information prompt compares the best annuity quote available to other products the consumer might be able to purchase with their pension pot, such as a flexible drawdown policy.

However it agrees that the information prompt should inform consumers that they may be eligible to purchase an enhanced annuity and has amended the information prompt templates so that they each include a clear and prominent statement to this effect.

Nathan Long, Senior Pension Analyst at Hargreaves Lansdown, commented: "Despite changes to the proposed template, the ability to get an improved annuity due to your health or lifestyle is not prominent enough, even though it now impacts on the majority of those buying a secure income. These regulations are built around behavioural nudges yet the prompt to try and secure an enhanced annuity reads very much as though it is bolted on as an afterthought. Extending the date from which this applies to March 2018 is welcome, but we have concerns the amount of work required could see yet more annuity providers leave the market which would be bad for retirees."

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