FSA to investigate pensions annuity market amid fears
Watchdog acts as pensioners lose out on thousands in income each year
Wednesday 30 January 2013
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.
- 1 Autistic adults could take pure MDMA to 'reduce social anxiety'
- 2 Before you complain about your GP, this is what you need to know about actually doing the job
- 3 Father of 12 accused of raping, beating, starving and abusing his own children in US 'cult'
- 4 Britain's Got Talent 2015: Jamie Raven divides Twitter as fans expose mind-boggling magic trick
- 5 Charlie Charlie Challenge explained: not a Mexican demon being summoned — it's gravity
EU referendum: David Cameron's rules are a 'democratic disgrace', says French-born Scottish politician set to be denied a vote
SNP fury as HS2 finds 'no business case' for taking fast train service to Scotland
Australian man punched in the face for defending Muslim women from abuse on train
A nation of inequality: How the UK is failing to feed its most vulnerable people
David Starkey 'tells Amal Clooney to shut up and stop over-promoting human rights'
EU referendum: David Cameron to deny EU migrants and under-18s the chance to vote
iJobs Money & Business
£30 - 35k: Guru Careers: We are seeking a Pricing Analyst to join a leading e-...
£20000 - £25000 per annum + OTE £45K YR1: SThree: At SThree, we like to be dif...
£20000 - £25000 per annum + competitive: SThree: Did you know? SThree is a mul...
£55 - 65k (DOE): Guru Careers: A unique opportunity for a permanent C# Develop...