FSA to investigate pensions annuity market amid fears

Watchdog acts as pensioners lose out on thousands in income each year

The Financial Services Authority will announce an investigation today into the multibillion-pound pensions annuity market amid fears that many people are losing out on thousands of pounds of income a year when they retire.

The regulator will say it has concerns that consumers are not shopping around between pension providers for an annuity, where a pension fund is converted into an income for life.

It will look at whether insurers are doing enough to encourage pension savers to exercise what is called the open market option at retirement, the right to take their savings and shop around for the best annuity.

At present six out of ten savers choose to accept the annuity offered by their pension provider. The difference between the best and default annuity rates could mean a £100,000 retirement pot buys an annual pension of £5,700 rather than £4,700.

The FSA review of the market will take up to 12 months and will look at whether annuities are fairly priced and marketed to the public. Following the review, the FSA may take the step of naming and shaming firms which are offering poor deals to savers or those that are seen as putting barriers in the way of people looking to exercise the open market option.

"This is a timely review of the annuity market as we need more consumers shopping around for the best possible deal. Oxford Economics estimates that up to £7bn could be lost by pensioners not shopping around," Stephen Lowe, the director of the leading annuity provider Just Retirement, said.

The insurance industry is already under heavy political pressure to improve its handling of annuity customers. The Pensions minister, Steve Webb, is believed to have given the insurance industry an ultimatum to reform itself and how it sells annuities or face legislation.

One industry insider said the FSA investigation marks a "last-chance saloon" for insurers, while Tom Mcphail, the pensions expert at Hargreaves Lansdown, said: "This announcement from the FSA serves notice to any insurance companies which aren't looking after their customers that the regulator has its eye on them."

In response, from 1 March, the Association of British Insurers is introducing an annuity code of conduct which is meant to improve transparency in the market. The code will force insurers to publish their annuity rates – previously many firms kept what they offered to individuals secret.

In addition, the code will ensure that individual savers will be quizzed about their health before signing up to an annuity. The idea is that savers will be better placed to take advantage of enhanced annuities which pay a bigger income to people with medical conditions that may shorten their life expectancy.

Insurance industry figures show that only 2 per cent of people who sign up to their own pension provider's annuity deal enjoy an enhanced annuity, whereas 60 per cent of those who shop around for an annuity but using an independent financial adviser see their income boosted.

"This review not only has to look at people moving away from their current pension provider but also ensuring that more people buy the right annuity product for them. After all, annuity rates have been falling in the past few years, meaning that many do not get back what they put into their pension," Billy Burrows, the director of the Better Retirement Group, said.

Suggested Topics
Jacqueline Bisset has claimed that young women today are obsessed with being 'hot', rather than 'charming', 'romantic' or 'beautiful'
Arts and Entertainment
Lena Dunham
booksLena Dunham's memoirs - written at the age of 28 - are honest to the point of making you squirm
Arts and Entertainment
A bit rich: Maggie Smith in Downton Abbey
tvDownton Abbey review: It's six months since we last caught up with the Crawley clan
Frank Lampard and his non-celebration
premier leagueManchester City vs Chelsea match report from the Etihad Stadium
Life and Style
A new app has been launched that enables people to have a cuddle from a stranger
techNew app offers 'PG alternative' to dating services like Tinder
Greg Dyke insists he will not resign as Football Association chairman after receiving a watch worth more than £16,000 but has called for an end to the culture of gifts being given to football officials
Arts and Entertainment
Jake Quickenden sings his heart out in his second audition
tvX Factor: How did the Jakes - and Charlie Martinez - fare?
premier league
Arts and Entertainment
'New Tricks' star Dennis Waterman is departing from the show after he completes filming on two more episodes
tvOnly remaining original cast-member to leave crime series
Mario Balotelli celebrates his first Liverpool goal
premier leagueLiverpool striker expressed his opinion about the 5-3 thriller with Leicester - then this happened
ebooksAn unforgettable anthology of contemporary reportage
Britain's shadow chancellor Ed Balls (L) challenges reporter Rob Merrick for the ball during the Labour Party versus the media soccer match,
peopleReporter left bleeding after tackle from shadow Chancellor in annual political football match
Arts and Entertainment
Female fans want more explicit male sex in Game of Thrones, George R R Martin says
tvSpoiler warning: Star of George RR Martin's hit series says viewers have 'not seen the last' of him/her
Plenty to ponder: Amir Khan has had repeated problems with US immigration because of his Muslim faith and now American television may shun him
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Senior BA - Motor and Home Insurance

£400 - £450 Per Day: Clearwater People Solutions Ltd: **URGENT CONTRACT ROLE**...

Market Risk & Control Manager

Up to £100k or £450p/d: Saxton Leigh: My client is a leading commodities tradi...

SQL Developer - Watford/NW London - £320 - £330 p/d - 6 months

£320 - £330 per day: Ashdown Group: The Ashdown Group have been engaged by a l...

Head of Audit

To £75,000 + Pension + Benefits + Bonus: Saxton Leigh: My client is looking f...

Day In a Page

A roller-coaster tale from the 'voice of a generation'

Not That Kind of Girl:

A roller-coaster tale from 'voice of a generation' Lena Dunham
London is not bedlam or a cradle of vice. In fact it, as much as anywhere, deserves independence

London is not bedlam or a cradle of vice

In fact it, as much as anywhere, deserves independence
Vivienne Westwood 'didn’t want' relationship with Malcolm McLaren

Vivienne Westwood 'didn’t want' relationship with McLaren

Designer 'felt pressured' into going out with Sex Pistols manager
Jourdan Dunn: Model mother

Model mother

Jordan Dunn became one of the best-paid models in the world
Apple still coolest brand – despite U2 PR disaster

Apple still the coolest brand

Despite PR disaster of free U2 album
Scottish referendum: The Yes vote was the love that dared speak its name, but it was not to be

Despite the result, this is the end of the status quo

Boyd Tonkin on the fall-out from the Scottish referendum
Manolo Blahnik: The high priest of heels talks flats, Englishness, and why he loves Mary Beard

Manolo Blahnik: Flats, Englishness, and Mary Beard

The shoe designer who has been dubbed 'the patron saint of the stiletto'
The Beatles biographer reveals exclusive original manuscripts of some of the best pop songs ever written

Scrambled eggs and LSD

Behind The Beatles' lyrics - thanks to Hunter Davis's original manuscript copies
'Normcore' fashion: Blending in is the new standing out in latest catwalk non-trend

'Normcore': Blending in is the new standing out

Just when fashion was in grave danger of running out of trends, it only went and invented the non-trend. Rebecca Gonsalves investigates
Dance’s new leading ladies fight back: How female vocalists are now writing their own hits

New leading ladies of dance fight back

How female vocalists are now writing their own hits
Mystery of the Ground Zero wedding photo

A shot in the dark

Mystery of the wedding photo from Ground Zero
His life, the universe and everything

His life, the universe and everything

New biography sheds light on comic genius of Douglas Adams
Save us from small screen superheroes

Save us from small screen superheroes

Shows like Agents of S.H.I.E.L.D are little more than marketing tools
Reach for the skies

Reach for the skies

From pools to football pitches, rooftop living is looking up
These are the 12 best hotel spas in the UK

12 best hotel spas in the UK

Some hotels go all out on facilities; others stand out for the sheer quality of treatments