A consumer group is calling for “sweeping regulatory reforms” to the UK annuities market, after a study found that millions of pensioners could lose out in retirement
The study was carried out by the Financial Services Consumer Panel (FSCP), an independent statutory body set up to represent consumers. In a report published today, they call for action from both the government and the regulator.
Every year, more than 400,000 people purchase an annuity as a way of turning their pension pot into a retirement income, with sales set to double over the next few years, due to auto-enrolment among other factors.
This study comes a month after ministers accused insurers of making “excess” profits, and claims that savers are “poorly placed to drive effective competition” in the annuity market.
According to the research, the main factors preventing consumers from getting the best deal were: low financial capability, fear of product complexity, mistrust of advisers and an inability to find advice at an acceptable cost.
The study did find an increased awareness among consumers of the fact that they can shop around for an annuity, rather than sticking with their pension provider. However, it also found that, once consumers did start shopping around, they were quickly put off by the overwhelming complexity of the products on offer. This leads to what the report terms a “shop but stop” phenomenon.
The FSCP said:
“The increase in non-advice sales appears to be driven by light-touch regulation and higher profit margins, not consumer demand,
“We urgently need to reform this market, particularly for those with smaller pension pots, who usually can’t get independent advice.”