Out-Law News 2 min. read
12 Dec 2014, 2:24 pm
In a new report, the Financial Conduct Authority (FCA) said that although the creation of this new tool would be challenging and costly, it would be of particular benefit to the increasing number of savers with multiple pension pots and other sources of retirement income. Similar platforms had been successfully introduced in other countries, the regulator said.
The proposal is one of a number of proposed initiatives put forward by the regulator as part of a market study of retirement income and the non-advised sales practices of pension providers offering annuities to their existing customers. Its interim report confirmed that not enough consumers were shopping around for the best deal before purchasing an annuity, as established by an earlier thematic review; but found that the products continued to offer "good value for money" to those with average-sized pension pots and little appetite for risk.
"We want to see firms improving the way they communicate with their customers," said Christopher Woolard, the FCA's director of policy, risk and research. "In order for the pension reforms to work and for people to have trust and confidence in the products they are buying, firms need to act now."
Woolard added that upcoming reforms to the retirement income market, due to take effect in April 2015, were a "game changer". These reforms will allow members of defined contribution (DC) pension schemes to access their savings in any way that they wish from the age of 55, subject to their marginal rate of income tax and without necessarily having to purchase an annuity.
"People will be given more choice and many will want some support to ensure they make the right decisions for them. The government's new guidance guarantee, with the standards we have already proposed, is a vital part of this – now firms need to play their part," he said.
The FCA is now seeking views on its initial findings before the end of January, and will consult at a later date if it decides to pursue potential rule changes, it said.
An annuity is a policy from an insurance company that converts a pension fund, or part of a pension fund, into a regular income. Around 420,000 of the policies were sold every year before the chancellor's surprise announcement as part of the March 2014 Budget, according to the FCA.
In February 2014, the FCA found that the annuities market was not working well for most consumers and announced that it would carry out a market study looking at the entire retirement income market. The scope of the market study was changed following the Budget announcement to look at how the market might develop, as well as gathering evidence on how it works today.
In its interim report, the FCA recognised that the development of a 'pensions dashboard' was a longer-term project. In the short to medium term, it has recommended that firms be required to provide consumers with details of how their quote compares to others on the open market and that the ABI's existing code of conduct on shopping around be replaced with FCA regulation applicable to all firms, not just ABI members. It has also proposed replacing the current 'wake-up packs', which are sent to consumers six months ahead of their expected retirement date, with a behaviourally-trialled alternative.
The FCA has also told firms to make "significant improvements" to their annuity sales practices, particularly in relation to the sale of enhanced annuities. It said that some firms were failing to tell consumers entitled to enhanced annuities because of shortened life expectancy or an underlying health condition that they could get a higher income by shopping around. Firms involved in the exercise have been asked to review a sample of relevant sales since May 2008. Depending on the outcome of this review process, the FCA may take further action, it said.