The FCA will now use its new remit to launch a competition market study to get to the heart of the issue and make recommendations that will have wider implications as to how the market operates.
The supervisory review gathered information from 25 firms representing 98% of the annuities market by sales volume. The review found that eight out of 10 could get a more generous retirement income by shopping around, yet consumers lack the confidence to switch and do not fully understand all the decisions they need to make.
The FCA believes providers may be unfairly trying to retain existing customers to maximise profits.
Martin Wheatley, the FCA’s chief executive officer, said: “Once you’ve bought an annuity you can’t change your mind. For most people getting the right annuity could mean the equivalent of an extra £1,500 in savings, so we need to understand why they aren’t shopping around and switching.”
The FCA is critical of price comparison sites, saying they lack clarity of information and like to underplay the significance of buying an annuity.
They also concluded that the market forsakes people with less than £5,000 saved for retirement, with only a handful of providers offering them annuities.
Wheatley added: “There should be competition across the entire market, not just for those with the most money. That is why we will be using our new remit to conduct a competition market study and a review of sales practices in pension providers. This is a very significant piece of work for the FCA.”
Currently, 60% buy an annuity from their current provider, with about 420,000 sales every year.
However by shopping around for a better rate and switching provider, that annual income could increase by an average of 6.8% according to the FCA.