This article is from the source 'bbc' and was first published or seen on . It last changed over 40 days ago and won't be checked again for changes.
You can find the current article at its original source at http://www.bbc.co.uk/news/business-26178113
The article has changed 6 times. There is an RSS feed of changes available.
| Version 0 | Version 1 |
|---|---|
| Pension system 'not working', says City watchdog FCA | Pension system 'not working', says City watchdog FCA |
| (about 5 hours later) | |
| The UK pensions system is not working, the City watchdog has concluded following a review into the "disorderly" annuities market. | The UK pensions system is not working, the City watchdog has concluded following a review into the "disorderly" annuities market. |
| An annuity is a retirement income that is bought once with a pension pot and provides an income for the rest of the holder's life. | An annuity is a retirement income that is bought once with a pension pot and provides an income for the rest of the holder's life. |
| This income could increase by 6.8% a year by shopping around for an annuity, the Financial Conduct Authority said. | This income could increase by 6.8% a year by shopping around for an annuity, the Financial Conduct Authority said. |
| And the industry had "closed the door" on those with small pension savings. | And the industry had "closed the door" on those with small pension savings. |
| Switching | Switching |
| People who save into a defined contribution pension will usually buy an annuity with their pension pot. | |
| The Financial Conduct Authority (FCA) reviewed 25 pensions firms representing 98% of the UK annuities market. | The Financial Conduct Authority (FCA) reviewed 25 pensions firms representing 98% of the UK annuities market. |
| The FCA found that six out of 10 retirees bought an annuity from the provider which they used when saving for a pension. | The FCA found that six out of 10 retirees bought an annuity from the provider which they used when saving for a pension. |
| But 80% of those could have got a better deal, and a more generous retirement income, by shopping around and buying the annuity from another provider. | But 80% of those could have got a better deal, and a more generous retirement income, by shopping around and buying the annuity from another provider. |
| In pounds and pence, the typical pot of pension savings analysed in this review was £17,700. This would typically be used to buy an annuity that would pay an annual retirement income of £1,030. | In pounds and pence, the typical pot of pension savings analysed in this review was £17,700. This would typically be used to buy an annuity that would pay an annual retirement income of £1,030. |
| But by shopping around, that annual income could increase by £71, or 6.8%, to £1,101. | But by shopping around, that annual income could increase by £71, or 6.8%, to £1,101. |
| One in six people could see their retirement income increase by more than 10% if they changed provider, the FCA said. | One in six people could see their retirement income increase by more than 10% if they changed provider, the FCA said. |
| "The need to get an income in retirement unites us all. But once you've bought an annuity you can't change your mind," said Martin Wheatley, chief executive of the FCA. | "The need to get an income in retirement unites us all. But once you've bought an annuity you can't change your mind," said Martin Wheatley, chief executive of the FCA. |
| "We need to understand why they aren't shopping around and switching." | "We need to understand why they aren't shopping around and switching." |
| Small savings | Small savings |
| The FCA review found that people who had saved less than £5,000 into a pension pot were particularly poorly served by the industry. | The FCA review found that people who had saved less than £5,000 into a pension pot were particularly poorly served by the industry. |
| "There is virtually no market whatsoever for people with smaller pension pots. This means that for those people who need to make every penny of their pension count, the market has closed the door on them," Mr Wheatley said. | "There is virtually no market whatsoever for people with smaller pension pots. This means that for those people who need to make every penny of their pension count, the market has closed the door on them," Mr Wheatley said. |
| "There should be competition across the entire market, not just for those with the most money." | "There should be competition across the entire market, not just for those with the most money." |
| The FCA will now conduct a study to assess competition in the market, and will publish some possible remedies within 12 months, but some have argued that the process is too slow. | The FCA will now conduct a study to assess competition in the market, and will publish some possible remedies within 12 months, but some have argued that the process is too slow. |
| "It is disappointing that after a full year we still have to wait many months more for a second stage investigation by the FCA before regulatory action of some description can be initiated," said Malcolm McLean, consultant at Barnett Waddingham. | "It is disappointing that after a full year we still have to wait many months more for a second stage investigation by the FCA before regulatory action of some description can be initiated," said Malcolm McLean, consultant at Barnett Waddingham. |
| "The purchase of an annuity is effectively still a one chance opportunity. Consumers must always consider that while a difference between annuities may not seem like very much, if they then multiply this by 20 to 30 years the losses in retirement income can add up to a significant amount of money." | "The purchase of an annuity is effectively still a one chance opportunity. Consumers must always consider that while a difference between annuities may not seem like very much, if they then multiply this by 20 to 30 years the losses in retirement income can add up to a significant amount of money." |
| Andrew Tully, of provider MGM Advantage, said: "The FCA review doesn't go far enough, or act quickly enough. This will potentially leave many thousands of retirees high and dry when navigating the annuity minefield." | Andrew Tully, of provider MGM Advantage, said: "The FCA review doesn't go far enough, or act quickly enough. This will potentially leave many thousands of retirees high and dry when navigating the annuity minefield." |
| Most complaints made to the Financial Ombudsman Service emerged from a lack of explanation in plain English from a provider about what an annuity is and how it works. | Most complaints made to the Financial Ombudsman Service emerged from a lack of explanation in plain English from a provider about what an annuity is and how it works. |
| The Association of British Insurers (ABI), which represents many pension providers, said that changes were already being made to make things clearer. | The Association of British Insurers (ABI), which represents many pension providers, said that changes were already being made to make things clearer. |
| "We recognise that our industry can do more to make the market work effectively for customers which is why we are finalising a new package of measures to enable people to engage and to shop around for better deals," said Otto Thoresen, director general of the ABI. | "We recognise that our industry can do more to make the market work effectively for customers which is why we are finalising a new package of measures to enable people to engage and to shop around for better deals," said Otto Thoresen, director general of the ABI. |
| "This would include ensuring customers have the right to a conversation to help them understand the difficult decisions at retirement; and how all customers can get a comparison of rates." | "This would include ensuring customers have the right to a conversation to help them understand the difficult decisions at retirement; and how all customers can get a comparison of rates." |
| Huge industry | Huge industry |
| Some 420,000 annuities are sold every year, and millions of workers are saving into a pension pot so will eventually need to buy an annuity. | Some 420,000 annuities are sold every year, and millions of workers are saving into a pension pot so will eventually need to buy an annuity. |
| The amount that a pension pot could buy in the annuities market fell sharply during the financial crisis, but started to recover in 2013. | The amount that a pension pot could buy in the annuities market fell sharply during the financial crisis, but started to recover in 2013. |
| Not everyone has to buy an annuity to receive a pension income. Those with final-salary pensions will be awarded a pension pot linked to their salary when they finish work, so will not need an annuity. | Not everyone has to buy an annuity to receive a pension income. Those with final-salary pensions will be awarded a pension pot linked to their salary when they finish work, so will not need an annuity. |
| The state pension is also unconnected to annuities. | The state pension is also unconnected to annuities. |