Maggie Williams looks at the latest proposals from the FCA to help retirees get better deals from insurers
Pity the poor annuity. Despite being the seemingly low-maintenance, regular income option for retirement, it has been battered from all sides by sexier drawdown options, low interest rates, poor offerings from some providers, damning press coverage - and the resulting general public perception that annuity = bad.
Whether the annuity is dead or merely in need of a refresh, the FCA wants better treatment for customers. In its Retirement Income Market Study, the financial services watchdog recommended introducing a ‘annuity comparator’, to ensure that customers are aware of and understand their options before making an annuity purchase.
Christopher Woolard, executive director of strategy and competition at the FCA emphasised the importance of shopping around, “yet our previous work found that very few people actually did so.”
The first details of that comparator were released this week. From September 2017, anyone considering an annuity must be given a ‘personalised information prompt’ from the provider. The prompt must show the difference between the provider’s annuity and the highest quote available on the open market. It must also provide a link in the document to that best quote.
Quotes will need to follow a format developed by the FCA – which will also require more formal reporting from providers as a part of the new recommendations.
A recent study by the FCA showed that 60% of consumers are not investigating other providers, and that 80% could be getting a better deal on the open market if they did so. In separate research, it found out that there was a 27% increase in the number of people who went on to compare annuities more fully when they saw the potential difference in annual income between their provider’s annuity and that of the competition.
This may have a feeling of déjà vu. Association of British Insurers (ABI) figures show that in 2009, 35% of consumers bought an annuity from a provider other than the one that they had saved their pension with.
“The problem of making it easy for investors to understand the benefit of shopping around and to then act on that knowledge, has vexed policymakers for years,” said Tom McPhail, head of retirement policy at financial advisers Hargreaves Lansdown, commenting on the current FCA proposals.
McPhail added that, while the new prompts might encourage greater awareness of the comparative value of annuities: “the bit still to be dealt with is the fact that 75% of annuity purchasers could get an enhanced annuity and that won’t be reflected in this proposed disclosure.”
While there are subsequent FCA announcements to come on a access to enhanced annuities, at the very least personalised prompts should help consumers to see that annuity quotes are not one-size-fits-all.