In March 2015, we published the final findings of our retirement income market study and our proposed remedies. The final findings set out our conclusions on the effectiveness of competition in the retirement income market and our remedies on how we intend to intervene in the market to make competition work better for consumers.
MS14/3.3 Final report [PDF]
In February 2014, we published the thematic review of annuities which found that the annuities market was not working well for most consumers. Based on these findings we launched a market study of the wider 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 2014 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 from April 2015. 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. In December 2014 we published our interim report, which set out our provisional findings and proposed remedies.
We have a crucial role in supporting consumers in a landscape that is on the brink of major change, and ensuring the market develops in a positive direction. We are required to set the standards for the Pension Wise service (created by the Government to provide free, impartial pensions guidance), and to monitor compliance with those standards. We have published rules requiring pension providers to direct their customers to the Pension Wise service. We have also published new rules on retirement risk warnings, which will help to protect consumers wanting to access their pension savings.
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.
We consulted widely on our provisional findings and proposed remedies. We held a consultation workshop with 41 interested parties on 16 January 2015, and received 38 written responses to our consultation, which closed on 30 January 2015.
Our confirmed findings
We have confirmed our provisional findings that competition in this market is not working well for consumers as final, in particular:
- 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 are deterred from engaging with their options by the length and complexity of wake-up packs, or because they do not believe the sums involved make shopping around worthwhile
- Consumers’ tendency to buy products from their existing provider weakens competitive discipline on incumbent firms and makes it harder for challenger firms to attract a critical mass of customers
- Consumers are highly sensitive to how options are presented to them. Savers reaching retirement will face a landscape that is more complex and will need support in making the right choices.
Our remedies are designed to support consumer choice in this market, particularly in light of the forthcoming pension reforms. They are:
- Requiring firms to provide an annuity quotation ranking so that consumers can easily identify if they could be getting a better deal by shopping around.
- Redesigning and behaviourally trialling the information that consumers receive from their providers, such as wake-up packs, in the run up to their retirement.
- In the longer term, the creation of a pensions dashboard which will allow consumers to see all their pension pots in one place.
In addition, we want to see firms framing the options available to help consumers make good decisions, rather than to drive sales of certain products. We will also be monitoring the market and tracking consumer outcomes, as well as the take-up of the Pension Wise service.
The next phase of our work on annuity comparisons and wake-up packs is ongoing alongside our current review of our rules in the pension and retirement area. We have already started to design the behavioural trials that we will carry out with consumers. Following publication of this report, we are contacting firms to work with us on these. We are working with Government to develop a Pensions Dashboard in the longer term. The market monitoring and framing recommendations will be ongoing pieces of work.
We also remain on high alert for scams targeting consumers, including those who are at-retirement, and we will continue to take robust enforcement action against such activity. We have also stepped up our activity by continuing our ScamSmart campaign targeted at those consumers most at risk, including retirees. This will continue to help consumers spot the warning signs and avoid investment scams.
Find out more
- Retirement income market study: revised terms of reference
- Retirement income market study: interim report
- TR14/2: Thematic review of annuities
- TR14/20: Annuities sales practice
- PS14/17: Retirement Reforms and the Guidance guarantee, including feedback on CP14/11
- Occasional Paper No.5: The value for money of annuities and other retirement income strategies in the UK
- Exploring Consumer Decision Making and Behaviour in the At-Retirement Landscape (Qualitative consumer research)
- At-Retirement Consumer Research – exploring changes in the retirement landscape (Quantitative consumer research)
- Does the framing of retirement income options matter? A behavioural experiment
- The retirement income market: Comparative international research
- The retirement income market: Comparative international research, country analysis
- We welcome action taken by a number of pension providers to review and strengthen their competition compliance