Consumer champions reckon at least 130,000 people a year buying annuities are paid less retirement income by their pension providers than they could earn if they had shopped around.
The Financial Conduct Authority (FCA) has triggered a 12-month probe into the annuities market after a review uncovered suspicions that firms and advisers are profit-driven rather than working for the best interests of their customers.
The study by the FCA accused annuity providers of running a ‘disorderly market’ and ‘not working well for consumers’.
Around 40% of annuity buyers purchase annuities from their pension provider – that’s around 168,000 out of 420,000 annuities sold each year.
Risk customers discouraged to shop around
The FCA investigation revealed as many as eight out of 10 buying from their pension provider could have sourced annuities paying retirement income of an extra £70 a year. A small number of customers – around 5% a year – could potentially earn up to an extra £200 a year.
But one key discovery was annuity providers make more money from customers who have has pensions with the firms than from customers who buy an annuity from them after shopping around.
As a result, the FCA believes these firms could potentially discourage customers from moving their pension funds to better deals elsewhere.
FCA chief executive Martin Wheatley said: “Our research showed that there is virtually no market whatsoever for people with smaller pension pots. This means that for those who need to make every penny of their pension count, the market has closed the door on them.
“There should be competition across the entire market, not just for those with the most money.”
Warnings about bogus advisers
The FCA has also issued these warnings about bogus firms posing as regulated financial advisers:
Dealing with an unregulated firm
If you buy shares, save money or invest with an unregulated firm, you lose any protection offered by the Financial Ombudsman and the Financial Services Compensation Scheme. Broadly, you have no independent place to complain if the deal goes wrong and are unlikely to win any compensation.
Checking if a firm is regulated
Go to the Financial Services Register to check if a firm is regulated in the UK.
Reporting a suspected bogus adviser
Find out how to report unauthorised advisers on the FCA web site
