The FCA will require pension providers to replace wake-up packs and the ABI Code with an obligation to offer an annuity quote comparison.
One of five ‘remedies’ proposed in its final report to its retirement income study published today, the FCA says it will require providers to publish a market leading quote alongside the provider’s own quote, to highlight the different income they could achieve by shopping around.
The regulator also wants quick changes to the pre-retirement information supplied to retirees by providers.
It also proposes the development of a pension dashboard so that individuals can see all their pension information in one place.
The FCA’s report confirms the key findings of its interim report, that consumers have been missing out on a higher income by not shopping around, deterred by complex provider wake-up packs, that consumers’ tendency to buy annuities from their existing provider weakens competition and that consumers underestimate longevity, inflation and investment risk. The FCA is also concerned that a predicted increase in the number and complexity of products available to consumers could reduce consumer confidence and appetite to shop around.
MGM Advantage pensions technical director Andrew Tully says: “The FCA study confirms what many of us in the industry have known for some time, the market is dysfunctional and not enough people are choosing the best retirement income option at the best price. This in part is due to buyer education and too few people accessing advice, but it is also down to provider bias.
“We now need to take clear and quick steps to address the issue. We have made some moves in the right direction, with the introduction of Pension Wise and the second line of defence. We need to look at the pension passport concept and find a way of introducing that sooner rather than later as a first step in the process towards a pension dashboard.”
Aegon regulatory strategy director Steven Cameron says: “We support the development of a Pensions Dashboard as a virtual aggregator, which will allow customers to see all of their pensions in one place. Rather than building a standalone and very costly database, we support a framework, supported by standard messaging, to allow information to be pulled together when needed. Customers are most likely to engage with pensions through their current provider or scheme so it’s vital they can access the dashboard through this route.
“How best to provide a meaningful annuity quotation ‘ranking’ does need further thought and we welcome the forthcoming consultation as a route to fully exploring challenges and solutions.”
The FCA’s five remedies to tackle retirement income issues
Remedy 1 – Requiring firms to provide an annuity quotation comparison so that once a consumer has decided to buy an annuity, they can easily identify if they could be getting a better deal by shopping around and switching provider
Remedy 2 – Recommendations to improve the way information is framed to consumers to help them make decisions surrounding their retirement income
Remedy 3 – Redesigning and behaviourally trialling the information that consumers receive from their providers in the run up to their retirement
Remedy 4 In the longer term, the creation of a pensions dashboard which will allow the consumer to see all their pensions in one place
Remedy 5 – Monitoring by the FCA to track market developments and consumer behaviour and outcomes, as well as the take up by consumers of the Pension Wise service