Pension providers with customers looking to buy an annuity can expect to be shown the best rates available on the market before they invest their retirement cash.
City watchdog the Financial Conduct Authority (FCA) has instructed pension firms where they can find the best deal – even if the offer comes from a rival.
The move follows research that revealed almost two-thirds of consumers bought an annuity from their pension provider instead of shopping around for the best deal, even though 80% of them would have picked up a better annuity rate from another company.
Since September, the FCA has told pension providers to point annuity customers towards an online comparison tool to see if they can find a better option before committing their cash to a lifetime contract.
Shop around for a better deal
Now, the firms must write to their customers with their annuity quote and the highest rate available on the open market. The pack will also include a clear of explanation of the difference between both offers.
Christopher Woolard, executive director of strategy and competition at the FCA, said: “Although annuity sales have declined since pension freedoms were introduced last year, 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.”
The measure follows a government decision to scrap plans for a secondhand annuity market that was due to open in April 2017.
Financial habits
The FCA is also ordering pension providers to keep a record of how many customers seek financial advice before making important decisions about taking money from their pensions.
The watchdog expects pension providers to supply regular information about the financial habits of the over 55s.
“There is a continuing need to collect data about the retirement income market. Therefore, building on our experience from the ad hoc data collection, we are now proposing to create two new regulatory returns to collect retirement income data and replace the current ad hoc return,” said an FCA spokesman.
“We expect the introduction of our regulatory returns to provide benefits by contributing to our consumer protection and competition objectives.”
