No S**t Sherlock – FCA states the obvious

Shock! Horror! The internal annuity market is broken.

So, claims the FCA in its long-awaited Thematic Review of Annuities, published today. In its 36 page report, the FCA states 80% of the people who buy annuities from the ceding provider could have got a more generous retirement income if they had shopped around and bought from a different provider. It goes on to say one in six people could increase their retirement income by more than 10% if they changed provider, and for people with severe health conditions the figure is potentially much higher.

It also has the startling news that the situation is worse for those with pots of less than £5,000 as only a handful of providers offer them annuities.

And what’s the FCA’s answer to this? To conduct a competition market study and further supervisory work.  More reports, which we probably won’t get to see for at least another 15 months.

In a way, I get why FCA had to do the report. It has to get actual proof of the situation, to prove the internal annuity market doesn’t work. But on the other hand, I am staggered it has taken 13 months to state the obvious, to tell us what we already know. And to leave us dangling in the same position, with only the promise of more reports.

This doesn’t take us any further forward. It doesn’t help the hundreds of thousands of people who will retire this year. And it’s not as if its hands are tied. The retirement income market is well aware it has problems. The social media and websites are awash with ideas of what we can do to improve the situation. It’s just a mystery why the FCA doesn’t stop, listen, and act.

For example – I’ll give you five quick hit ideas. None of these are original – there are several providers or organisations recommending these today.

1.       Give people a simple pension passport – gives people all the information they need to shop around. ABI or FCA could introduce this.

2.       Get the provider to obtain a completed health questionnaire – this will highlight the client’s health situation and, if suitable, will push them towards an enhanced annuity. ABI or FCA could action this.

3.       Get people to sign a disclaimer if they stay with the original provider, This means we put in front of them in big letters “are you sure about this? you might be doing the wrong thing”, Again, one for ABI or FCA.

4.       Remove commission. Introduce adviser charging style fees and disclosure for the non-advised channel, so people know –and agree to - exactly what they are paying. One for the FCA.

5.       Finally, get the trivial commutation rules sorted. We should be talking about a level of at least £10,000. HMT should be actioning this.

Please FCA, ABI and HMT. Do something. Don’t just write reports. We need Steve Webb’s idea of a taskforce to identify some quick wins. Because the longer this goes on, the more damage is done to the market, and the more people lose out.