FCA Report Confirms That Needs Of Pensioners Comes Second With Providers Putting Profits Ahead Of Customer Service
We need a financial services industry that that has a primarily aim of servicing people and rather than putting profit of market participants as its main goal says GMB.
GMB responded to a review by the Financial Conduct Authority (FCA) published today on the retirement marketplace and the selling of pension products in the UK and yet again finds that large chunks of the industry continues to let workers and pensioners down in their retirement saving. See notes to editors for text of press release on retirement income market study -published by FCA on 11th December and website links to FCA and other reports.
Today sees the publication of further reports on the retirement marketplace and the selling of pension products in the UK, and again finds these to be lacking.
Phil McEvoy, GMB Pensions Officer, said “The review confirms that we need a financial services industry that that has a primarily aim of servicing people and rather than putting profit of market participants as its main goal.
This is one more of the numerous reports indicating that large swathes of the financial services industry continue to let workers and pensioners down in their retirement saving.
The principle of annuity provision remains sound in grouping together pensioners for sharing costs and risks, but confidence in them has been seriously dented by sections of the industry that put profit ahead of customer service.
Through Automatic Enrolment and the Government's Freedom and Choice, the pensions marketplace looks set to expand. It is therefore vital that Government and Regulators look to act to ensure that every aspect of the industry acts to prioritise the needs of savers and retirees first and foremost.”
Contact: Phil McEvoy, GMB National Pensions Officer 079187 68773 or 0207 391 6700 or GMB press office 07921 289880
Notes to editors
1 Text of press release: Retirement income market study -published by FCA on 11th December.
This interim report presents our provisional findings on how the current market is operating and a series of recommendations to improve the way firms communicate with customers about their options. In addition, we have also identified some future risks and set out what we will be looking for as the market develops.
In February 2014 we found that the annuities market was not working well for most consumers. Based on these findings we launched a market study of the entire retirement income market to assess whether competition in this market was working – and if not, to understand why, and what changes could be made to drive better consumer outcomes.
Since the launch of this market study, the landscape has changed. In March this year the Government announced the biggest reform of the retirement system for a generation, giving consumers much greater freedom over how to use their pension savings.
Following this announcement, the scope of the market study was changed to look at how the market might develop, as well as gathering evidence on how it works today. A separate piece of work was also undertaken to look specifically at non-advised annuity sales practices.
The Government’s reforms have increased the at-retirement choices facing consumers, so it is vital that consumers are properly supported in making their decisions. In November we published the standards for the bodies responsible for delivering the Government’s new guidance guarantee aimed at those with defined contribution pensions. We have also published rules requiring pension providers to direct their customers to the guidance service at retirement.
The pensions guidance service will perform an important role, but firms’ own communications with their customers will remain of central importance. This interim report presents our provisional findings on how the current market is operating and a series of recommendations to improve the way firms communicate with customers about their options. In addition, we have also identified some future risks and set out what we will be looking for as the market develops.
The market study has been published at the same time as our thematic review into annuities sales practices. We 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 scope of our study and our approach
We examined products purchased by UK consumers with their defined contribution pension pots that provide an income in retirement – specifically, annuities and income drawdown.
We undertook two public calls for evidence, engaging with a wide range of industry stakeholders, consumer organisations and other Government departments. We analysed a range of information from firms gathered both prior and subsequent to the March 2014 Budget. This has helped inform our provisional findings and our early views on how the market might evolve.
We commissioned both qualitative and quantitative consumer research, conducted a behavioural experiment of consumer decision-making, and international comparative analysis of ten other countries. We undertook economic analysis of the value for money of annuities and other retirement income strategies.
Our provisional findings
Competition in this market is not working well for consumers. Many consumers are missing out by not shopping around for an annuity and switching providers, and some do not purchase the best annuity for their circumstances. Consumers’ tendency to buy products from their existing provider weakens competitive pressure on incumbent firms and makes it harder for challenger firms to attract a critical mass of customers.
Looking forward, we have identified developments we very much want to see in the market, but we have also identified future risks.
This report sets out a number of proposed remedies that we believe will go some way to address the concerns identified in our 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 consumers. We want firms to design and sell retirement income products that meet genuine consumer needs and provide good value. People should get the income in retirement that they have saved for.
We invite comments on our provisional findings and proposed remedies by 30 January 2015. Please complete our online response form.
Once we have considered consultation responses, we will produce our final report in 2015.
2 FCA's report on Annuities Sales Practices can be seen at http://www.fca.org.uk/your-fca/documents/thematic-reviews/tr14-20
3 FCA's report on the Retirement Income Market can be seen at http://www.fca.org.uk/your-fca/documents/market-studies/ms14-03-2
4 Excerpts from these reports, include:
"others are deterred from engaging with their options by the length and complexity of the ‘wake-up packs’ sent out by providers,1 or because they do not believe that the sums involved make it worthwhile. Our thematic review findings suggest that providers’ verbal communications with their customers do not go as far as they should to encourage shopping around. "
"We found evidence indicating that firms’ sales practices are contributing to consumers not shopping around and switching, and at times to consumers potentially buying the wrong type of annuity, in particular not purchasing an enhanced annuity when they may be eligible for one. This means consumers may be missing out on a potentially higher income in retirement as a result.”
5 In 2013, the Office of Fair Trading published a report highlighting the opaque nature of pension savings vehicles. This can be seen at http://webarchive.nationalarchives.gov.uk/20131101164215/http:/www.oft.gov.uk/shared_oft/market-studies/oft1505