New rules from the FCA will force annuity providers to reveal how their quotes compare to the best deals on the open market.
Annuity providers will be required to show customers comparison quotes from rivals following new proposals from the Financial Conduct Authority (FCA).
Research from the watchdog shows that 60% of customers aren’t switching providers when they bought an annuity despite the fact that up to 80% could have found a cheaper deal on the open market.
The FCA’s Retirement Income Market Study is recommending an “annuity comparator” in the form of an information prompt, which will encourage people to shop around before they settle on a deal.
What will it look like?
Under upcoming rules, providers will have to show personalised information in a format chosen by the FCA.
It’ll show the difference between the provider’s own quote and the highest quote available from every other provider on the open market. There’ll be a link in the prompt to help you to access the best deal.
Firms will also be forced to give 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.
The FCA has proposed that the new rules will come into force in September 2017.
On top of that, it plans to make annuity providers send data to the FCA about the types and volumes of products they’re selling.
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.”
A rotten time for annuity holders
Last month the Government ditched plans for a secondary annuity market, which would allow people to sell poorly-performing annuities in exchange for a lump sum.
It said that the risks would outweigh the benefits, citing fears of pensioners running out of money before they die, a lack of competition in the secondary market and a spike in annuity-related scams.
The announcement came amid figures showing the biggest annual annuity rate plunge on record.
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