Financial regulators are ploughing ahead with controversial proposals aimed at stirring up the annuity market for providers and improving retirement incomes for consumers.
The Financial Conduct Authority (FCA) revealed that changes are on the way by publishing a retirement income market study following a lengthy consultation with financial firms and advisers.
The reforms will require financial Annuity to providers to up their game and make their products more transparent for customers.
The new proposals
The FCA is demanding that they:
- Rank their annuity quotation against those offered by competitors so customers can easily identify the best deals when shopping around
- Rip up and redesign ‘wake up’ packs sent to new retirees so they make clear that annuity rates can be compared with other companies and signposting that enhanced rates are available to some customers with medical or lifestyle conditions that may shorten their lifespan
- Create online pension dashboards that collect all a customer’s pension income sources in one place
Annuities are insurance contracts that guarantee an income for life.
Christopher Woolard, director of strategy and competition at the FCA said: “The retirement income market is facing a revolution with flexible access to pension funds and the opportunity to buy out existing annuities from April 2016.
“Our job as a regulator is to make sure that customers have all the information they need to make relevant financial decisions, but in some cases providers have tried to obscure this and offer sub-standard products.”
The pension revolution is not about pushing products, but giving customers the right outcome, Woolard added.
Financial companies have broadly welcomed the proposals, but have really ended up being dragged kicking and screaming into a brave new world of pensions as they have tried to slowdown or counter the FCA and government at every turn to protect their profits.
Steve Folkard, a retirement income specialist at accountants PwC said: “The moves put forward by the FCA are welcome but present a lot of risks and challenges.
“Financial firms may be called to make recommendations that decimate their customer bases because their products are not seen to be as competitive as those offered by other companies.
“Companies who relied on customers staying with them because it was the easier choice now face a difficult commercial challenge.”