A recent study conducted by the FCA revealed that many pensioners have been badly let down by the annuities market. Catheryne Michael looks at the measures being put in place to resolve this issue.
It’s recently been announced that insurance firms will have to disclose how their annuities compare to their rivals’, following an investigation into the mis-selling of these products.
Although no evidence of mis-selling was found, it is apparent that many pensioners have been badly let down.
The issues with the annuity market
The Financial Conduct Authority (FCA) has found that the market is not working well, and has requested that firms review a sample of annuity sales going back to 2008.
The FCA published findings from their study into the retirement income market, after revealing that insurers were maximising profits, failing to give customers the best deal, and that the annuity market was disorderly.
Maybe this is not mis-selling, and maybe it is not on the scale of the endowments or PPI scandals; but it seems that companies have failed to look after the interests of their customers.
What will be expected of insurance firms?
Insurance companies will have to follow stricter rules on how they sell annuity pensions to make sure people get the best deal in retirement, according to the FCA.
The FCA’s study confirmed that competition is not working as well as it could for consumers, and many are missing out on a higher income by not shopping around for their annuities.
Earlier this year it found that those buying a standard annuity could have boosted their annual income by as much as £200 by shopping around.
The watchdog added that on average, those buying annuities were missing out by £67.
The study also found that buyers of enhanced annuities could have been £290 better off, or increased their annual income by £135.
It’s not all bad news though; the pensions reform in the Budget, combined with this FCA review, should result in a more competitive and flexible system in the future.
– Catheryne Michael