The Financial Conduct Authority (FCA) has criticised the retirement income market, warning that people are not getting the best value from their savings as they are not being helped to shop around.
Following an investigation, the regulator said that the current Association of British Insurers Code (ABI) on retirement choices, which includes a responsibility to help people shop around when buying an annuity, was not being applied in practice.
As a result the FCA wants to replace the ABI code, which only covers its members, with FCA regulation which would cover the whole industry.
The FCA has set out four main recommendations:
- Firms should make clear to customers how their quote compares relative to other providers on the open market.
- An alternative system to the current ‘wake-up packs’ should be trialled and feed into the work of replacing the ABI code with FCA regulation.
- The pension guidance service and firms should design tools to support decision-making.
- The development of a ‘Pensions Dashboard’ should be considered which would allow people to view all their lifetime pension savings in one place.
How lovemoney's new Plans tool can help you plan for a richer financial future
Annuities
[SPOTLIGHT]The FCA also conducted a review into how annuities are sold.
It found evidence that sales practices were contributing to people not shopping around and switching providers.
A particular concern was around enhanced annuities, as the FCA found customers that may qualify for one were not informed that shopping around may help them get a higher income. This follows separate research last week which suggested thousands of people have been sold the wrong annuity. For more, read Annuity mis-selling leaves up to 1.5 million pensioners out of pocket.
The FCA will continue to investigate the majority of firms to determine if its findings on enhanced annuities indicate a more widespread problem, looking at annuity sales since 2008.
Next steps
The FCA is seeking views on its initial findings and principle recommendations before 30th January 2015. It will publish its final recommendations later next year.
How lovemoney's new Plans tool can help you plan for a richer financial future