Each year 420,000 annuities are sold in the UK, and now UK watchdog the Financial Conduct Authority (FCA) has pledged to shake up the GBP 14 billion-a-year market, after finding it “disorderly.”
The news comes after an extensive review by the FCA which covered the 25 most popular annuities firms covering 98% of the market. It determined the annuities market fails customers on two main fronts: The information given is not easy to understand, and the market particularly fails those with small pensions.
There is “virtually no market whatsoever” for those with smaller pensions, noted Martin Wheatley, the FCA’s chief executive.
“For those people who need to make every penny of their pension count, the market has closed the door on them.”
Annuities convert pension pots into pension income for retirement, and there are is a wide variety in today’s market.
Yet for the most part, pensioners do not shop around before their retirement; with six out of every ten pensioners simply choosing the annuity on offer from their existing pension provider.
This has led to the recent condemnation, as around 80% of pensioners within the FCA review could have found a better deal.
On average, a pensioner can increase their yearly income by 6.8%.
Second survey
“Once you’ve bought an annuity you can’t change your mind,” Wheatley stated.
“But for most people getting the right one could mean the equivalent of an extra GBP 1,500 in savings.”
Despite previous initiatives, consumers are still being trapped in unprofitable annuities, and “consumer inertia plays a significant role.”
Speaking to the BBC’s Today programme, Wheatley stated that “information is not provided in a way that allows people to make simple choices.”
To this end, the FCA aims to provide greater information for those seeking annuities, outline preferable options for those with a smaller pension, and investigate how annuities are sold to customers in a second round of the survey.
The FCA will reveal the initial findings in the summer, and further results from the competition market study before 2015.
However, many experts are stressing the importance of haste in the exercise, with pensions expert Ros Altman stating: “We need immediate action as more than 1,000 people every week are buying annuities and the transactions are irreversible.”
Barnett Waddingham consultant Malcolm McLean noted: “It is disappointing that after a full year we still have to wait many months more for a second stage investigation by the FCA before regulatory action of some description can be initiated.”
About John Cassidy
