FCA to force annuity providers to show what their competitors are offering

Posted by George Coburn in Personal Finance on 28 November 2016 - George is a Credit Analyst at checkmyfile

Following previous research, the Financial Conduct Authority (FCA) found that many people weren’t shopping around when looking to purchase an annuity, with as many as 60% sticking with their existing provider. Of these people choosing to remain, the FCA concluded as many as 80% could have saved money if they’d shopped around.

In order to tackle the situation, the FCA is imposing a requirement that annuity providers give information relating to their competitors to their customers before they proceed with purchasing their annuity. Customers will benefit both from being informed regarding possible other options but it is also assumed competition will get more intense between providers. The news rules being imposed by the FCA will come into force from September 2017.

Firms will be provided a set format in order to provide information to customers and this will be dictated by the FCA. Within the form, in addition to their own quote, providers will also be required to include the most expensive quotes from their competitors. There will also be details on how a customer can investigate better options available to them so they don’t just go for the simplest, default option by sticking with their current provider.

Further details relating to whether the annuity is a single of joint life product, if the income from the annuity is fixed for the whole term and exactly how much is being used to purchase the annuity.

The FCA researched a variety of different formats for the new factsheets/quotes. It was found that by showing the gain in income customers would receive by switching, as many as 27% of participants of the research then went on to compare products from other annuity providers.

Speaking of the change in processes, the FCA’s Executive Director of Strategy and Competition, Christopher Woolard 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.”

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