Following the announcement by the FCA of their thematic review into the pensions annuity industry, PwC life insurance leader, Philippe Guijarro, comments:
"The FCA comment that 80% of customers could be better off by shopping around for their annuity supports the view that there may be some customer inertia within the pensions annuity market, but the devil is in the detail - the statistics also show that customers who buy their annuity through an existing pension provider have significantly smaller pots on average. It costs firms more to manage lots of small pensions compared with a few large ones and the FCA found no evidence of differential pricing. Lower annuity rates could just reflect the high cost of running small pension pots.
"This complexity is clearly the reason why the FCA is now going to look in more detail at whether competition is working in the interests of customers. It looks like the FCA could be considering some novel options around improving the way people shop around and, in turn, whether this might in practice improve annuity rates. While the thematic review focussed on annuities, the FCA's follow-up market study will look at retirement income more broadly and so will include income drawdown. Clearly this could be an area of regulatory focus for a while yet.
"We expect life insurers to continue to focus on ensuring that their customers get good outcomes - and how they can evidence that. Any imminent retirees should take this as a reminder call to treat buying an annuity like any large purchase and to shop around.
"This is another shot across the bow for an industry already reflecting on feedback from the OFT and scrutiny from the recently launched review of legacy pensions. The industry is under a lot of pressure to show it's really putting customers first. Amid all this furore we shouldn't forget the critically important role the pensions industry plays in helping people provide for their retirement. With the erosion of state pension provision over the past decade the role of private sector pensions is more important than ever."
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