FCA surprised that doing nothing didn’t fix OMO!
The Financial Conduct Authority (FCA) have released data that shows that the majority of people purchasing annuities actually bought them from their existing provider and didn’t make use of the Open Market Option to shop around for a better deal.
The real surprise here is that the FCA ever imagined it would. Faced with calls for the fixing of the market, they instead opted for interminable consultations and thematic reviews until the Treasury finally ran out of patience and abolished the need for anyone to purchase an annuity.
This at least meant that people were no longer forced to buy an annuity, which meant that some of those who would have not been suited to it were spared being forced to buy it. But it did nothing to identify those who should or shouldn’t have had one, nor did it do anything to encourage competition in the market.
In a classic case of throwing the baby out with the bathwater, the arrival of pension freedoms, combined with the reduction in advice being given due to the RDR, meant that there was a huge reduction in the amount of annuities being bought but no improvement in the suitability of the annuities being bought by the public, albeit in smaller numbers.
No steps were taken to make the OMO compulsory, which has resulted in the latest finding that 64% of customers taking out an annuity stayed with their existing provider and didn’t shop around for a better deal.
Given the increasing amount of time spent in retirement by the majority of the population, annuities, guaranteeing payment for life, are clearly a useful tool for those trying to plan their post working-life income. The regulator combined with the politicians and many in the industry itself to pour scorn on these products. We are now reaping the whirlwind with far fewer people using their tax-benefitted lifetime savings to provide an income boost to their state pension.
The FCA has three stated goals: To protect consumers, to protect and enhance the integrity of the markets, and to promote competition. Clearly they have failed on all three counts in the annuity market. All that has been achieved is that the number of those who may have unsuitable annuities is reduced by virtue of the fact that the overall number of people buying annuities has been reduced.
The FCA is clearly crying out for a new CEO who can focus its efforts and clarify its mission. As the interim CEO Tracey McDermott has officially ruled herself out from taking the job full-time, the Chancellor needs to make getting a new permanent CEO a priority. For the sake of those moving into retirement, the sooner this market is sorted out, the better.
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