New rules means annuity providers will need to tell their customers how much they could gain by shopping around and switching pension provider.
The new Financial Conduct Authority (FCA) rules come after the regulator discovered 60% of customers were not switching pension providers whey they bought an annuity.
Up to 80% of these retirees could have secured a better deal on the open market.
As part of the FCA’s Retirement Income Study, the regulator recommended an ‘annuity comparator’ is established to encourage shopping around for better rates.
This annuity comparator is likely to take the form of an information prompt before an annuity is purchased.
Under the FCA’s proposals, pension providers will be required to deliver information in a personalised form in a format set out by the FCA.
This prompt will have to show the difference between the provider’s own quote and the highest quote available to the consumer from all other providers on the open market.
There will also be a prompt to help the customer access the best quote, displayed as a link contained in the information prompt
Christopher Woolard, Executive Director of Strategy and Competition at the FCA 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.”
Another new requirement will see pension providers giving details of whether an annuity is a single or joint life product, whether the rate of income paid by the annuity is guaranteed and the total pot that will be used to buy the annuity.
These proposals come after testing different information and formats by the FCA to understand which best encouraged people to shop around.
The behavioural testing found that when shown the annual increase in income that a consumer could gain from purchasing an annuity on the open market, the testing showed a 27 percentage point increase in the number of participants that went on to compare products from different providers.
These new rules are proposed to come into force next September.
Here at Informed Choice, we look forward to seeing these new rules implemented and hope they will help encourage more people to shop around for a better deal at retirement.
Of course choosing the most suitable retirement income is about much more than finding a competitive annuity rate.
It pays to seek independent financial advice before making a lasting decision with your pension pot.
