Annuities – what next for providers and advisers?
The FCA has published its of Thematic Review of Annuities having conducted a substantive review of the annuity market.
The headline is that 80% of consumers who purchased their annuity from their existing pension provider could have got a better rate on the open market. The percentage increases to 91% when looking at enhanced annuities. This equates to a difference of £6m - £11m in annuity income in any single year and £115m to £230m over the lifetime of annuitants.
The FCA's aim is clear; encourage more to shop around for their annuity rather than settling for their existing pension provider. The FCA found that in 2012 60% of consumers stayed with their existing pension provider when it came to purchasing their annuity. Although a lot has already been done to encourage customers to exercise their open market option (for example the ABI Code) the FCA want more to shop around.
The FCA's encouragement may well be music to the ears of IFAs and wealth managers whose services will no doubt be required to assist consumers when it comes to both the timing and shape of their annuity. Consumers are likely to need advice when deciding whether or not a joint or single life, enhanced or standard, level or escalating annuity is best for them or whether to ignore annuities altogether and opt for income drawdown. The Financial Services Consumer Panel has already recognised this issue in calling for a code for non-advised sales of annuities, as those reaching retirement start looking at what their pension really means when it comes to income in retirement.
The government is making almost weekly suggestions on what to do with the annuity market, whether it's switching annuities or a one-year cooling off period. The government's concern is simple, auto-enrolment will lead to an increased number with pension policies which they will one day want to turn into an annuity. One thing seems certain the annuity market is likely to remain the focus of regulatory attention for both annuity providers and advisers for the foreseeable future.