The Panel recommends 'urgent regulatory and government-led structural reform' in order to prevent millions of pensioners from losing out.
The Panel’s extensive 12-month study, which included a literature review and three separate pieces of independent research, uncovered evidence of a complex market which is failing to deliver good outcomes for many consumers.
The Panel’s main recommendations are:
The FCA should:
- embody in regulatory rules and mandatory standards the equivalent of a code of conduct for the non-advice market, which emphasises the need for high professional standards, the transparent disclosure of charges, and a clear explanation of the implications of non-advice for consumer protection.
- address the causes, including light-touch regulation and non-transparency of commission, of the current regulatory arbitrage in which non-advice services are expanding at the expense of the professional advice market
- undertake a rigorous market study to examine among other things the possible exploitative pricing of annuities sold by insurance companies to their DC customers who have saved with them for a pension.
- strengthen the definition of the Open Market Option.
Meanwhile, the panel recommends that the Money Advice Service should develop an annuity adviser website and require member firms to adhere to the code of conduct, and that the Government should require employers and trustees to establish a non-advice service for members of workplace schemes, and ensure this adheres to the code of conduct.
Sue Lewis, Chair of the Consumer Panel member commented:
“400,000 annuities are sold each year; this will increase significantly as those who have been auto-enrolled into pension savings reach retirement age. The Open Market Option has been around for a long time, but still isn’t working for many people, who are getting less income in retirement than they could. We are seeing a shift towards purchasing annuities via ‘non-advice’ routes, which means reduced consumer protection if things go wrong. The increase in non-advice sales appears to be driven by light touch regulation and higher profit margins, not consumer demand. We urgently need to reform this market, particularly for those with smaller pension pots, who usually can’t get independent advice. Our recommendations are intended to make choosing the right annuity more straightforward.”
Andrew Tully, pensions technical director, MGM Advantage commented:
“The annuity market is not working as well as it could for many people who retire each year. Too often we see people take the pension with the company they have saved with, without realising the benefits of shopping around, not only for the best rate but also the right shape of annuity, particularly taking into account health and lifestyle. The FSCP report should be welcomed by all who want to see this market create the best outcomes for customers.
“Our research continues to evidence a complete lack of awareness and understanding of the options people have when approaching retirement. 43% of the 55-64 age group are unaware of the different products and options to generate a retirement income, while 61% are unaware of the open market option.”
