The FCA has published:
- Thematic Review 14/20: Annuities sales practices (TR14/20); and
- Market Study 14/3.2: Retirement income market study: Interim Report – Provisional findings and proposed remedies (MS14/3.2).
TR14/20 sets out the results of an FCA thematic review which looked at the non-advised sales practices of pension providers offering annuities to their existing customers. The thematic review was designed to help the FCA understand whether firms’ sales and customer retention practices contributed to customers not shopping around and switching.
The FCA reports that it has found evidence indicating that firms’ sales practices are contributing to consumers not shopping around and switching, and at times to consumers potentially buying the wrong type of annuity, in particular not purchasing an enhanced annuity when they may be eligible for one. The FCA also found examples where the ABI Code is not being applied in practice, particularly where the requirements under the ABI Code are less prescriptive and require more judgements from firms to ensure customers are treated fairly as required by the FCA’s rules.
In MS14/3.2 the FCA’s interim findings indicated that competition in the retirement income market is not working well for consumers. The FCA found that many consumers are missing out on a higher income by not shopping around for an annuity, and some do not purchase the best annuity for their circumstances. The FCA found both positive and negative reasons for consumers not exercising their open market option. On the negative side, it found that one in five of those who purchase an annuity with their existing pension provider are unaware that they have the option to switch, while others are deterred from engaging with their options by the length and complexity of the “wake-up packs” sent out by providers, or because they do not believe that the sums involved make it worthwhile.
The FCA also identifies a number of proposed remedies that it believes will go some way to address the concerns identified. The FCA is consulting on these remedies which include:
- the FCA proposes to require firms to make it clear to consumers how their quote compares relative to other providers’ on the open market;
- the FCA recommends to both the pension guidance service and to firms to take into account framing effects and other biases when designing tools to support consumer decision making;
- the FCA will be working with the Government to develop an alternative to the current wake-up pack;
- the FCA recommends the development of a “Pensions Dashboard” which would enable consumers to view all their lifetime pension savings (including their state pension) in one place; and
- the FCA will continue to monitor the market as it evolves using a combination of consumer research, market data and ongoing sector supervision.
The deadline for comments on MS14/3.2 is 30 January 2015.
View TR14/20: Annuities sales practices, 11 December 2014