The FSA has announced that it is to review the UK annuities market amid concerns that annuity providers may be ‘deterring’ customers from seeking better rates elsewhere.
The FSA are to launch a two tiered investigation. The first will look at whether providers are actively deterring their customers from pursuing what is known as the "open market option" of shopping around to get the best possible deal.
The multibillion pound annuities market provides millions of retirees with an income in exchange for their pension savings. This income is paid out at regular intervals typically until death, and for many this provides the only additional financial support to the State Pension.
Nick Poyntz-Wright, head of life insurance at the FSA, said:
"An annuity purchase is an important one-off decision that has long-term consequences for individuals if they get it wrong. We want to understand the level of the potential detriment for consumers if they do not shop around, to see if there are ways to make this market work better for consumers."
The second tier of the investigation will look at how annuity providers offer their annuities and if this process is actively designed to inhibit customers from shopping around.
Other plans include forcing all annuity providers to provide greater transparency with their rates. This may come in the form of publishing rates to encourage clear and honest comparisons between providers. Presently all rates are kept private.
The importance of shopping around for an annuity is not to be underestimated. The FSA predicts that only 40% of customers actively seek the open market option. This means that the majority are settling for payments that could be around 20% lower than if they shopped around.
Longer life expectancy combined with a difficult economy has heavily affected the annuities market, so the importance of being proactive with a pension potmay be greater than ever.