Commenting on the outcomes of the FCA’s annuities thematic review, Malcolm McLean, consultant, says:
“The FCA report confirms what we already knew – or at least strongly suspected – that the annuity market is not working well for consumers.
“The fact that eight out of ten people could get a more generous retirement income by shopping around (equivalent to an extra £1,500 paid into a pension) is an absolute indictment of the system and points to the need for real changes to be introduced as soon as possible.
“It is disappointing that after a full year we still have to wait many months more for a second stage investigation by the FCA before regulatory action of some description can be initiated.
“In the meantime the industry (pension schemes as well as providers) must redouble its efforts to encourage individuals to seek advice and support in determining the timing and type of any annuity needed as well as the best provider.
“The idea of providing a passport setting out all the relevant facts including health considerations should be actively considered. The government should also urgently review the trivial commutation rules (taking the whole of the pot value in cash) with a view to increasing the limit on small individual pots from the present £2,000 to at least £5,000 – thus enabling better value to be obtained from using only larger pots for the annuity process.
“The purchasing of an annuity is effectively still a one chance opportunity. Consumers must always consider that while a small sounding difference in the rate between annuities may not seem like very much, if they then multiply this by twenty to thirty years the losses in retirement income over the rest of their lifetime can add up to a significant amount of money.”