FCA: Pension firms still failing consumers
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A recent review by the FCA of pensions and pension providers has found that pension providers are still failing their customers by not presenting all the options when it comes to taking an income from their pension pots.
The study which began in February 2014 was specifically looking at the estimated 8m people who had stakeholder or personal pensions and whether they were receiving a fair deal when it comes to receiving their pension income.
Until this year, to take an income from pensions in the UK you had to purchase an annuity, but recent pension reforms announced by George Osborne have meant that is no longer the case. However, annuities are still an option which pension providers and insurance companies are keen to sell.
Deciding which annuity to purchase has always been an important decision which required thorough investigation as in most cases the decision is irreversible.
The review has uncovered that 60% of consumers were not switching annuities when purchasing an annuity, and 80% of those could receive a significantly higher income by shopping around and choosing a different provider.
With the pension reforms, the government and FCA have worked together to devise a set of guidelines which include providing advice for helping people make an informed decision about how to take an income from their pension pot – i.e. whether to choose an annuity, take the entire pension as a lump sum or via income drawdown.
The risk is that, based on historical evidence, people should be aware that pension providers may not provide fully independent advice and therefore if the consumer does not conduct their own research in the open market, they may end up with a worse deal as a result.
As reported in the BBC, Christopher Woolard, the FCA's director of policy, risk and research said, "We want the industry to play its part; we want to clean up how people are presented with their options."
For people living in the UK the situation has become more complex with the increase in options, but for expats with even more options, such as QROPS, it is even more important to seek independent advice to ensure that your retirement plans are as efficient as possible.