In February 2014, the FCA launched a market study to assess whether competition in the retirement income market is working well for consumers, and if not, to understand why, and what changes could be made to drive better outcomes. On 11 December 2014, the FCA published an interim report which presents its provisional findings and its proposed remedies for consultation.

The market study found that competition in the retirement income market is not working well for consumers. Consistent with previous findings of the FCA’s thematic review of annuities in February 2014, many consumers are missing out on a higher income by not shopping around for an annuity, and some do not purchase the best annuity for their circumstances.

The market study interim report has been published at the same time as the FCA’s thematic review into annuities sales practices. The FCA says that it will be asking some firms to do further work to determine if the findings of this thematic review in relation to the sale of enhanced annuities are indicative of a more widespread problem.

The interim report sets out a number of proposed remedies that the FCA believes will go some way to addressing the concerns identified in its provisional findings, with a particular focus on stopping things getting in the way of consumer choice, and improving the clarity and simplicity of communication between firms and their customers.

The FCA is consulting on proposed remedies, recommendations and actions, and says that, at this stage, it is minded to pursue the following;

  • requiring firms to make it clear to consumers how their quote compares relative to other providers’ on the open market;
  • recommending to both the pension guidance service and to firms to take into account framing effects and other biases when designing tools to support consumer decision-making;
  • working with Government to develop an alternative to the current wakeup pack. This should be behaviourally trialled to assess the impact on consumers’ awareness of their right to shop around, and the proportion of people who switch;
  • in the longer term, recommending the development of a “Pensions Dashboard” which would enable consumers to view all their lifetime pension savings (including their state pension) in one place;
  • the FCA will continue to monitor the market as it evolves using a combination of consumer research, market data and on-going sector supervision.

Comments on the FCA’s provisional findings and proposed remedies are requested by 30 January 2015. Once the FCA has considered these, it will produce a final report in 2015. It says that to the extent that any remedies it ultimately decides to implement require changes to the FCA rules, these will be subject to a separate formal consultation and cost benefit analysis later in 2015.