Plans to force pension providers to show their own annuity quotations against ‘best in market’ rates are a step in the right direction but Just believes the Financial Conduct Authority should go further to create a model that is truly customer centric.
Responding to consultation paper CP16/37 Implementing information prompts in the annuity market – which closes this week – Just said the current proposals “will not stop customers suffering financial detriment and may have the unintended consequences of discouraging customers from shopping around”.
“People can only be assured of achieving a good financial outcome by using a service that generates a personalised rate after collecting answers to questions that include customers’ medical conditions and lifestyles,” said Stephen Lowe, group communications director at Just.
“The current proposals will, in our assessment, result in a significant proportion of customers believing they are achieving a good outcome when that is unlikely to be true where the comparison is from a firm that does not use industry standard questions on the common quotation form – to generate an individually underwritten quotation. The FCAs previous findings in this area is clear – of those people who purchased an annuity from their existing pension firm and qualified for an enhanced annuity, over 9/10 would have got a better deal if they had purchased their product from a provider on the open market.”
He said that Just had shared evidence with the FCA that two in three customers qualify for some form of medical or lifestyle rate enhancement and typically customers receive a 25 per cent improvement in retirement income compared to a standard annuity.
“The proposals as they stand are not customer centric, they are built around the business model of the firm and not developed to put the consumer first,” said Stephen Lowe.
“That may also expose firms to future complaints that the ‘best rate’ offered was misleading, although firms who were aware the rates were lower could counter-argue they were only sticking to the rules.”
He said that to motivate people to shop around and make the effort to switch, the comparison needs to include the actual rate available to them and not based on a reduced standard rate that is convenient for the provider to display.
“Some of the industry has worked together to develop safeguards for customers and a common set of questions to provide tailored quotes, and this approach is being used by all professional advisers and an increasing number of life insurance companies who have implemented broking services for their customers wanting to access retirement benefits.
“The FCA has delivered some excellent work over the last few years to define the problem and behaviourally test solutions that will encourage more customers to shop around – establishing the basis of comparison to be in the best interest of the customer is an imperative that will determine whether this policy response is a hit or a miss.”
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