Add in some work from the Pensions Income Choice Association and the ABI (apologies to anyone that I have missed) and there you have it – the problem that will not go away.
In a few short paragraphs I have covered 12 years and a range of organisations, yet the conclusions are the same.
The FCA thematic review has the following objectives:
* To assess whether, and by how much, consumers would be better off buying an annuity on the open market rather than their existing pension provider.
* To consider the drivers of provider behaviour, including assessing, at a high level, the profitability expected from their annuity business.
* To review research on consumer behaviour and engagement to better understand how this affects shopping around and the choice of annuity.
The only new one is the second, looking at the profitability of annuity business. As we can see from the thematic review, this is not an easy thing to assess owing to the long-term nature of annuity business.
The findings were to be as expected:
* Parts of the market are not working well for consumers. For example, the majority of consumers (60 per cent) do not switch providers when they buy an annuity, despite the fact that an estimated 80% of these consumers could get a better deal on the open market.
* Consumers miss out on the benefits available from shopping around and switching due to their lack of engagement in pensions and annuities. Confusing trade-offs and the impact of behavioural biases make it difficult to understand the choices and may create barriers.
* Providers expect to make more profit on business sold to existing clients in comparison to business sold on the open market.
* Some annuity firms have high retention rates, perhaps due to active retention strategies. Such strategies could reduce the propensity to shop around.
* There are specific problems with small funds where there might be even less choice.
* There is a lack of access and knowledge of enhanced annuity rates for those annuitising with their existing pension provider and not shopping around.
So what next? Well, another study, it seems – and presumably no short-term actions.
My problem with all this is that it is not new – it is the same problem. What has changed over the past 12 years?
* We are living longer – so retirement is more than just a few years and therefore decisions need to be good ones.
* The babyboomer demographics mean that more people will be retiring over the next few years than ever before. Can we really let pensioners continue to make the same mistakes that have already been identified?
* Annuity rates have fallen and are unlikely to rise by much again – is innovation needed?
