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Pension firms failing consumers, says FCA Pension firms failing consumers, says FCA
(35 minutes later)
Some pension providers are failing their customers, the Financial Conduct Authority (FCA) has said.Some pension providers are failing their customers, the Financial Conduct Authority (FCA) has said.
Its review of the pensions market found most consumers were missing out on a higher income from their annuity because they did not shop around.Its review of the pensions market found most consumers were missing out on a higher income from their annuity because they did not shop around.
In particular, it said those who buy "enhanced" annuities were not being told about better value policies.In particular, it said those who buy "enhanced" annuities were not being told about better value policies.
Enhanced annuities are designed to provide a higher income to those with major medical conditions.Enhanced annuities are designed to provide a higher income to those with major medical conditions.
It said some firms fail to tell customers with shorter life expectancy that they could get a better deal from a different pension provider.It said some firms fail to tell customers with shorter life expectancy that they could get a better deal from a different pension provider.
The FCA launched an investigation into annuity providers in February, after finding that eight out of ten consumers who purchase an annuity from an existing provider could get a better deal on the open market. As a result, it is recommending that providers should be forced to tell customers how their quote compares with others on the market.
The FCA also said insurance companies would have to follow stricter rules on how they sold annuity pensions to ensure people were getting the best deal for their retirement income. "We want the industry to play its part, we want to clean up how people are presented with their options," Christopher Woolard, the FCA's director of policy, risk and research told the BBC.
It has made several recommendations, including requiring insurers to make it clear to customers how their quote compares with those from rivals. 'Smoking gun'
The FCA is seeking views on its initial findings and will consult at a later date if any potential rule changes are needed. The FCA also said that buying an annuity - an income for life - could still be the best option for many people.
Since the government's announcement of pension reforms in the budget, there has been a significant decline in annuity sales.
It was thought that income drawdown might be a better and more flexible option.
But the FCA said that for people with average-sized pension pots, and low risk appetite, annuities offer "good value for money" compared with drawdown.
The FCA's investigation has stopped short of exposing historical pensions mis-selling, which some in the industry had been expecting.
"The FCA has not found any evidence of widespread mis-selling of annuities; there is no smoking gun," said Tom McPhail of Hargreaves Lansdown.
"In fact, they have gone further than that by explicitly endorsing annuities as good value for money, but only if customers shop around on the open market," he said.
Shares in annuities provider Just Retirement Group rose significantly as a result.
The FCA is seeking views on its initial findings and will consult at a later date if any rule changes are needed.