Insurers will be forced to vindicate their marketing strategies to the neglected public, as the Financial Conduct Authorityís (FCA) shows that millions of pensioners have not received thousands of pounds through their faulty annuities.
Pension annuities, to be scrapped as part of the Coalitionís ëpensionsí revolutioní next April, have been obligatorily brought by workers in defined contribution schemes for many years now, as they are necessary to access your pension income. At present, savers are able to access up to 25% of their pension tax-free with the rest then going towards the purchase of the annuity.
However, in a damning verdict dealt to the pensions sector, the FCA has brought evidence to the surface showing a retiree with a £100,000 pension pot was losing out on a shade over £1,000 due to customer negligence shown by insurance firms possessing a far greater self-serving pecuniary interest.
Despite numerous competition-enhancing regulations imposed on these insurance firms, vast amounts of savers have lost out on larger amounts of pension income due to their failure to shop around, and it is the sales techniques deployed by insurers that can be held responsible for these stunted levels of switching.
The FCA pointed to the need for ësignificant improvementsí and laid out as list of proposals for change, including the creation of an industry code on pensions which providers would have to dogmatically adhere to and leveraging insurance firms into elucidating the value they provide when compared with their rivals.
ìThe budget reforms are a game changer for the retirement income market. People will be given more choice and many will want some support to ensure they make the right decisions for them,î said Christopher Woolard, director of policy, risk and research at the FCA.
ìWe want to see firms improving the way they communicate with their customers. In order for the pension reforms to work and for people to have trust and confidence in the products they are buying firms need to act now.
Richard Lloyd, Which? executive director, said: ìConsumers have been repeatedly let down by the pensions industry, with years wiped off peopleís hard-earned savings, so itís welcome to see the FCA working with the industry to clean up mistakes from the past,î he said.
ìThe regulatorís proposals to ensure consumers have better information when they make big decisions about their income at retirement are sensible. But action is long overdue and the regulator and industry must now quickly put in place changes to ensure retirement products offer true value for money.î
However, the scale of reform is not as great as was expected given the FCAís damning remarks, made in a review of the sector last February, over insurers profit-driven sales practices which held no regard for savers long-term financial security.
Conversely, the FCA said the best-value annuities brought in the correct fashion offered satisfactory value to the average saver.
Nonetheless, the FCA found that enhanced annuities, designed to offer better value to individuals with a lower life expectancy, were being marketed at particularly poor rates.
As a result, insurance firms are being forced to review their transaction history from 2008 onwards to ascertain the number of customers that ought to have received larger amounts of pension income. The thousands of savers that have been shafted out of sums of money could be recompensed following the conclusion of the review.
The annuity market, currently valued at £14bn, is expected to slow down significantly after compulsory annuities are dropped from April next year and pensioners are afforded far greater freedom to handle their lifetime savings as they choose.
Compare pensions with MoneyExpert.