FCA report claims savers missing out on thousands of pounds due to 'broken' market for pensions policies

The FCA's chief executive officer Martin Wheatley said there was no market for people with smaller pensions (Getty Images)

Many people saving for a pension are missing out on thousands of pounds in retirement because of the “broken” market for policies, according to a regulator’s report.

The findings of the Financial Conduct Authority (FCA) were hailed by pension campaigners, who said the system was rigged against consumers, as a “smoking gun”.

The FCA found that in around eight out of 10 cases where people have stuck with their existing pension provider to buy an annuity, they could have been better off financially by shopping around and switching.

On average the benefit of switching equates to someone having saved an extra £1,500 into their pension before they retired.

The FCA said its findings paint a picture of such a “broken” and “disorderly” market that it now plans to conduct a competition market study, which will include looking at sales of annuities by pension providers to their existing customers.

Martin Wheatley, the FCA's chief executive officer, said there was “virtually no market whatsoever” for people with smaller pension pots who “need to make every penny of their pension count”.

“We need to understand why they aren't shopping around and switching,” he said.

Ros Altmann, an independent expert and former Downing Street adviser, told The Daily Telegraph: “Finally, the blinkers are starting to come off at the regulator, which now understands how many people are suffering an injustice at the hands of insurers and brokers.

“The system is biased against customers, who face so many hurdles and such complexity that many simply give up on shopping around.”

Tom McPhail of Hargreaves Lansdown, a financial services firm, said the FCA had found “the smoking gun: most investors aren’t getting a good deal”.

The Association of British Insurers pointed out that the FCA's review excluded certain customers who stick with their provider because they are getting a better deal than they would elsewhere.

It said that when those not included are combined with the 40 per cent of people who already switch providers, overall, 40 per cent of annuitants could benefit from shopping around.

Otto Thoresen, director general of the ABI, said: “We are finalising a new package of measures to enable people to engage and to shop around for better deals.

“This would include ensuring customers have the right to a conversation to help them understand the difficult decisions at retirement; and how all customers can get a comparison of rates.

“We welcome the FCA's focus on understanding customer behaviour, including why more people do not switch, and we urge the FCA to speed up this important work, involving all those with a role to play in helping customers at retirement, as a year is long time to wait.”

Additional reporting by PA