Annuity providers are ripping off millions of pensioners while regulators are standing by and failing to protect their interests, according to a scathing new report.
The Financial Services Consumer Panel has spent a year looking into the annuity market and is calling the government to urgently reform the market to stop pensioners losing money.
The main problem is when pensioners switch their retirement savings into an annuity, advisers and firms are offering poor advice and charging high fees for a relatively straightforward transaction.
Pension and financial regulators were also harshly criticised for policing the market with too much of a light touch that failed consumers.
Annuities are investments bought with pension funds after retirement. An annuity provides a guaranteed income for life.
Code of conduct
The Financial Services Consumer Panel alleges the returns from annuities range widely and the market is unnecessarily complicated and confusing for consumers.
In a series of recommendations, the Financial Services Consumer Panel urges the Financial Conduct Authority to:
- Set up an industry-wide code of conduct for firms and advisers offering annuities without advice that makes them offer a more professional service, discloses all charges and explains consumers lack protection when they buy annuities direct without advice
- Makes regulation tougher for providers and advisers
- Launches an investigation to ensure pension firms are not exploiting pensioners who have saved with them by over-pricing annuities
- Make consumers more aware that they can shop around to compare annuities
Lack of consumer protection
The Financial Services Consumer Panel wants also wants the government to build an annuity adviser web site only accessible to advisers following the annuity industry code of conduct.
Sue Lewis, who chairs the Financial Services Consumer Panel said: “At least 400,000 annuities are purchased every year and the number is likely to grow.
“The option to shop around for the best deal has been there for a while, but doesn’t work for many people who end up getting less money in retirement than they should if the system worked properly.”
Lewis also explained consumers are moving towards non-advised purchases, which means they have less financial protection if things go wrong.
“Light regulation and high profits seem to be driving this market,” she said. “Consumers are being exploited and the market must reform to reflect this.”
The Financial Services Consumer Panel is a statutory body set up under the Financial Services Act 2012 which advises the Financial Conduct Authority on the interests and concerns of consumers.
