Publishing its market study, the FCA has confirmed that competition is not working as well as it could for consumers, with many continuing to miss out on a higher income by not shopping around. The regulator found breaches of the ABI code, which it wants replaced.
The FCA’s review of annuity sales practices found evidence indicating that firms‘ sales practices are contributing to consumers not shopping around and switching, and significant improvements are required now, but the regulator has made no recommendation of redress at this stage.
The FCA identified particular areas of concern in relation to enhanced annuities, where customers are often not informed of shopping around or encouraged to do so to get a higher income and where some firms are failing to tell customers other providers may offer enhanced annuities for medical conditions that they do not underwrite. The FCA is concerned that people in poor health were not given enhanced annuities.
The report says: “The further work we are asking firms to do is not a review of all relevant sales since May 2008, but for individual firms it may include gathering more evidence, on a statistically significant basis, to determine whether customers with certain medical conditions or lifestyle factors missed out on a higher income in retirement
“Once we have reviewed the additional evidence gathered by the affected firms, we will consider what further action, if any, to take.”
The FCA is asking the majority of firms involved in the review to do further work under FCA supervision. This work is to determine if the findings in relation to enhanced annuities are indicative of a more widespread problem. This will cover the period since the Financial Services Authority’s previous thematic work on Open Market Options in 2008. At this stage, this will be a sample of relevant sales since May 2008 rather than a full review and will involve individual firms gathering more evidence to determine whether customers with certain medical conditions or lifestyle factors missed out on a higher retirement income. Following this work the FCA will take a decision on whether further action is needed.
The FCA also found examples where the ABI Code is not being applied in practice. The ABI Code is compulsory for ABI members, and sets the industry’s own benchmark for members about communicating key information to consumers clearly and consistently.
Following discussions with the ABI, the FCA has decided to consult on its rules to replace the ABI code, which would cover all firms, not just ABI members. During any transitional period, the ABI code will remain in force for its members.
The regulator says despite access to the Guidance Guarantee, firms’ own communications with their customers will remain of central importance.
It says new rules are needed to require firms to make it clear to consumers how their quote compares relative to other providers on the open market.
It is calling for the introduction of a behaviourally trialled alternative to the current system of wake-up packs.
It also calls for the development of a ‘Pensions Dashboard’ that would allow consumers to view all their lifetime pension savings in one place.
The FCA is seeking views on its initial findings and will consult at a later date if any potential rule changes are needed.
FCA director of policy, risk and research Christopher Woolard says: “The Budget reforms are a game changer for the retirement income market. People will be given more choice and many will want some support to ensure they make the right decisions for them.
“The Government’s new Guidance Guarantee, with the standards we have already proposed is a vital part of this, now firms need to play their part.
“We want to see firms improving the way they communicate with their customers. In order for the pension reforms to work and for people to have trust and confidence in the products they are buying firms need to act now.”