Annuities market ‘not working’, says FCA

The annuities market is "not working" for the majority of customers, according to the Financial Conduct Authority (FCA).

The FCA found that 60 per cent of consumers do not switch provider when they buy their annuity. But 80 per cent of those who purchase an annuity from their existing pension provider could get a better deal on the open market.

The FCA reviewed 25 firms representing 98 per cent of the industry. They found that 13 providers only sold annuities to their existing customers and three firms sold only on the open market.

The FCA estimates that:

  • Annuitants could increase their average annual income by £71 (6.8 per cent) if they purchased an annuity on the open market
  • People buying an enhanced annuity on the open market could get an average increase of £135 (8.3 per cent)
  • Standard annuity buyers could get an average increase of £67 (6.7 per cent)
  • If between half and all of the annuity customers who buy from their existing provider shopped around instead, they could potentially benefit from between £115 million and £230 million of additional lifetime income.

Otto Thoresen, director general of the Association of British Insurers said:

"Today's report has a welcome emphasis on the importance of shopping around which the industry knows is essential if customers are to get the best deal for their savings. Annuities remain an important product for many people. But the market isn't working as well as it could as four in 10 could still benefit from shopping around and switching."