Annuity providers will be required to inform their customers how much they could gain from shopping around and switching provider before they purchase an annuity under plans, the Financial Conduct Authority (FCA) has announced today.
The FCA previously has found that 60% of customers were not switching providers when they bought an annuity and up to 80% of these customers could get a better deal on the open market.
In order to address this, the FCA’s Retirement Income Market Study recommended that an “annuity comparator” be established in order to encourage shopping around. The FCA is proposing that this comparator takes the form of an information prompt before an annuity is purchased.
Under the FCA’s proposals firms will be required to deliver information in a personalised form in a format set out by the FCA. This prompt will have to show the difference between the provider’s own quote and the highest quote available to the consumer from all other providers on the open market. There will also be a prompt to help the customer access the best quote – this will be a link contained in the information prompt.
Christopher Woolard, Executive Director of Strategy and Competition at the FCA said:
Although sales have declined since the pension freedoms were introduced, annuities still play a significant role in retirement provision. It’s important that consumers shop around to get the best deal for them – yet our previous work found that very few people actually did so.
We believe that the proposals we have outlined today will engage consumers and allow them to make better decisions, increasing shopping around and competition across the market.
Firms will also be required to give consumers details of whether the annuity is a single or joint life product, whether the rate of income paid by the annuity is guaranteed and the total pot that will be used to buy the annuity.
The FCA tested different information and formats to understand which worked best to encourage consumers to shop around. The behavioural testing found that when shown the annual increase in income that a consumer could gain from purchasing an annuity on the open market, the testing showed a 27 percentage point increase in the number of participants that went on to compare products from different providers.
The FCA has proposed that the new rules will come into force in September 2017.
The FCA has also announced that it plans to introduce requirements on the providers of retirement income products to provide data to the FCA about the types and volumes of products they are selling.