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FCA thematic review on annuities ABI response

Responding to the publication today of the FCA review of the annuities market,

Otto Thoresen, Director General Association of British Insurers said:

"Today's report has a welcome emphasis on the importance of shopping around which the industry knows is essential if customers are to get the best deal for their savings. Annuities remain an important product for many people. But the market isn't working as well as it could as 4 in 10 could still benefit from shopping around and switching.

"The industry has already taken action - the compulsory  Retirement Choices Code goes beyond what the current rules ask providers to do to help customers get good outcomes; but we recognise that our industry can do more to make the market work effectively for customers which is why we are finalising a new package of measures to enable people to engage and to shop around for better deals. This would include ensuring customers have the right to a conversation to help them understand the difficult decisions at retirement; and how all customers can get a comparison of rates.

"We welcome the FCA's focus on understanding customer behaviour, including why more people do not switch, and we urge the FCA to speed up this important work, involving all those with a role to play in helping customers at retirement, as a year is long time to wait.

"We agree with the FCA that people with small pots need help and flexibility to make the most of their savings, and increase their options at retirement. We are also pleased the FCA recognises that the retirement income market needs to evolve to meet the changing demands of consumers and the ABI's New Retirement Review, looking at the products, advice and help people get as they approach retirement, will be a key contribution to their thinking."

Additional information:

We agree with the FCA that there is an issue about people with smaller pots of savings not having access to as many options as those with large pots. We fully support efforts to help people make the most of their savings so they have more chance of securing a decent retirement income. Looking at how the trivial commutation rules work (rules which allow people to take small retirement pots as cash) has to be part of the answer.

There is a crucial difference between shopping around - looking at other rates available - and switching, where a customer decides to move to a different provider. Our figures show that two thirds of customers shop around, clearly whether those customers then decide to switch is ultimately their decision.

The report suggests that 60% of customers decide not to switch, and 80% of those could have got a better rate if they did. These figures from the FCA do not include those internal customers with guaranteed annuity rates - 25% of internal annuities - which are higher than rates offered elsewhere, and investment linked and escalating annuities.  We all need to look at how we help customers make good choices - this is something that the industry cannot solve by itself and we hope the market study will involve all those with a role to play here.

We welcome the emphasis on shopping around. When you take into account the 40% of customers who do switch, and the guaranteed, escalating and investment linked annuities sold, the FCA analysis shows that 4 out of 10 annuitants could get a better deal. We need to make the market work effectively for this group.

Useful Links

ABI retirement pages and what to expect from your pension provider approaching retirement

Last updated 01/07/2016