Annuities: Time for Regulatory Change

9 December 2013

The Financial Services Consumer Panel today publishes the findings of its research into the consumer experience of purchasing an annuity, which shows that the market does not work well for the majority of consumers. The Panel recommends urgent regulatory and government-led structural reform in order to prevent millions of pensioners from losing out.

The Panel’s extensive 12-month study, which included a literature review and three separate pieces of independent research, uncovered evidence of a complex market which is failing to deliver good outcomes for many consumers.

The Panel's main recommendations are:

The FCA should:

  • embody in regulatory rules and mandatory standards the equivalent of a code of conduct for the non-advice market, which emphasises the need for high professional standards, the transparent disclosure of charges, and a clear explanation of the implications of non-advice for consumer protection.
  • address the causes, including light-touch regulation and non-transparency of commission, of the current regulatory arbitrage in which non-advice services are expanding at the expense of the professional advice market.
  • undertake a rigorous market study to examine among other things the possible exploitative pricing of annuities sold by insurance companies to their DC customers who have saved with them for a pension.
  • strengthen the definition of the Open Market Option.


    The Money Advice Service should:

  • develop an annuity adviser website and require member firms to adhere to the code of conduct.


    The Government should:

  • require employees and trustees to establish a non-advice service for members of workplace schemes, and ensure this adheres to the code of conduct.

Sue Lewis, Chair of the Consumer Panel member commented:

“400,000 annuities are sold each year; this will increase significantly as those who have been auto-enrolled into pension savings reach retirement age.The Open Market Option has been around for a long time, but still isn't working for many people, who are getting less income in retirement than they could. We are seeing a shift towards purchasing annuities via 'non-advice' routes, which means reduced consumer protection if things go wrong. The increase in non-advice sales appears to be driven by light touch regulation and higher profit margins, not consumer demand. We urgently need to reform this market, particularly for those with smaller pension pots, who usually can't get independent advice. Our recommendations are intended to make choosing the right annuity more straightforward”.

Notes to editors

  1. The Consumer Panel's supporting research is available here: Annuities Websites Review; Research with Consumers; and Expert Views.
  2. The Consumer Panel is a statutory body under the Financial Services Act 2012. It was initially established by the Financial Services Authority in December 1998. The Panel advises the FCA on the interests and concerns of consumers.
  3. The Panel’s membership is drawn from a broad range of backgrounds with expertise including market research, law, financial services industry, financial inclusion, European Regulation, financial regulation, consumer advice, campaigning, communications, compliance and later-life issues.
  4. The emphasis of the Panel's work is on activities that are regulated by the FCA, although it may also look at the impact on consumers of activities outside but related to the FCA's remit. More information about the Panel's work is available here.