FCA To Probe Annuities Market For Pensions
The Financial Conduct Authority is to investigate pension providers over claims that the annuity market is preventing pensioners from getting a fair deal in retirement.
The FCA launched a probe into annuities last year and said it revealed such a "disorderly market" that it will carry out a competition market study looking at sales of annuities by pension providers to their existing customers.
The regulator will look for signs that companies try to hang on to customers by putting them off shopping around for a better deal.
If it finds examples of bad practice, it will ask firms to make immediate changes.
The FCA looked at around four-fifths of the 420,000 annuity sales that took place in 2012.
It found that 60% of people stayed with their current pension provider, but four out of five -fifths of them would have benefited from shopping around and switching.
Those buying a standard annuity could have boosted their annual income by as much as £200 by shopping around and by £67 on average, the data showed.
Buyers of enhanced annuities could have been £290 better off or increased their annual income by £135, the FCA found.
The trade body for the industry also admits change is now needed.
The Association of British Insurers said: "We agree with the FCA that there is an issue about people with smaller pots of savings not having access to as many options as those with large pots.
"We fully support efforts to help people make the most of their savings so they have more chance of securing a decent retirement income."
Annuities are a one-off purchase that people make when they retire, which convert their pension savings pot into a fixed annual income for the rest of their lives.
A variety of annuity types exist, including standard ones that most people tend to get and enhanced annuities, where people in ill health, such as smokers, can get higher payments.
The FCA's report is due to be published in the next 12 months but campaigners are calling for action to be taken now.
Independent expert and former Downing Street adviser Ros Altmann said: "The reason why immediate action is so important is that this market affects so many people and the transactions they are making are irreversible.
"More than 1,000 people every week are buying annuities and the market is worth £14bn each year."
The FCA said firms generally expect annuities sold to existing pension customers to be more profitable than business on the open market.
Martin Wheatley, the FCA's chief executive officer, said: "For most people getting the right annuity could mean the equivalent of an extra £1,500 in savings - so we need to understand why they aren't shopping around and switching."
Pensions Minister Steve Webb said: "Automatic enrolment means millions more people will be saving into a pension and therefore buying annuities in the coming years.
"This makes taking effective action to ensure that people get value for money from annuities all the more important, and the new FCA review is a welcome and crucial step, as part of the Government's ongoing work on the issue."
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