The annuity market isn’t working as well as it could for many UK retirees, according to a study published by British regulators on Friday.
The UK Financial Conduct Authority (FCA) said that its review of the annuities market found that it is not working well for consumers, as many retirees could be enjoying higher retirement incomes. Indeed, the study found that eight of 10 people could get a more generous retirement income by shopping around and buying an annuity from a different provider.
On average, the benefit of switching is equivalent to having an extra £1,500 saved into a pension just before retirement, it says. And, it notes that the situation is worse for people with smaller retirement savings, as they have much less choice of providers. Taken together “this paints a picture of a disorderly market”, the FCA says.
“The need to get an income in retirement unites us all. But once you’ve bought an annuity you can’t change your mind. For most people getting the right annuity could mean the equivalent of an extra £1,500 in savings – so we need to understand why they aren’t shopping around and switching,” said Martin Wheatley, the FCA’s CEO.
Moreover, he noted that its research showed that “there is virtually no market whatsoever” for people with smaller pensions. “This means that for those people who need to make every penny of their pension count, the market has closed the door on them,” he said. “There should be competition across the entire market, not just for those with the most money.”
In response, the FCA will now undertake a study of market competition, which will make recommendations for market reform; and, a review of the sales practices of pension providers. The FCA says that it will also consider whether changes to its investment rule book are needed “to create a market that treats its customers better.”