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FSA to investigate annuity pricing

by Alex Steger on Jan 31, 2013 at 07:23

FSA to investigate annuity pricing

The Financial Services Authority (FSA) is to investigate annuity pricing with a potentially precedent-setting probe into the £11 billion market, according to the Financial Times.

The FT reported that later today the regulator will reveal details of how it plans to examine annuity pricing data to determine how much pensioners are losing out by if they do not shop around.

The investigation could become a test case for the competition powers of the Financial Conduct Authority (FCA) which takes over from the FSA in April, the paper said.

Providers who appear at the bottom of best buy tables, yet have high levels of business, will come under the regulator’s scrutiny, the FT reported.

23 comments so far. Why not have your say?

Richard Butler

Jan 31, 2013 at 07:43

The FSA ought to thumb their nose at the EU and scrap gender neutral rates while they are at it. Surely they can see the difference between pricing of risk and discrimination?

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Sam De Zoysa

Jan 31, 2013 at 07:50

Perhaps the reason that too few shop around is because they don't currently receive or seek independent advice. I wonder why that situation might be exacerbated in the future?

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Richard Butler

Jan 31, 2013 at 08:01

Surely not, Sam. Have you no faith in the MAS? I'm sure they'll do a splendid job in promoting independent advice! (Their site says that if you are looking for an annuity specialist, you should choose a firm with at least 25 dedicated personnel - brilliant guidance!)

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Sam De Zoysa

Jan 31, 2013 at 08:12

Please tell me you're joking Richard! I've looked at the MAS recently and find it pretty much unnavigable. £87m of taxpayer financed competition.

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Bridge North

Jan 31, 2013 at 08:13

FSA investigates annuity pricing - why now?

Gender indiscrimination is bonkers in assessing risks, annuities in the main are risk products.

Leave the EU and the FSA cronies behind in Brussels.

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Paul Barnard

Jan 31, 2013 at 08:14

Pre or post RDR, with the bulk of pension posts well below the £28,000 "average", shopping around is really quite fruitless for most and more so once the cost of advice is fasctored in - that's why many companies at the bottom of best buy tables cinduct disproportionately more business. If they want someone who knows how things actually work I can advise them on a consultancy basis - shall we say £500 a day amd I'll bring my own sandwiches?

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john Stirling via mobile

Jan 31, 2013 at 08:30

I suspect that the fsa (fca) will discover that disclosure doesn't work very well & is too wordy and confusing. their answer will be to bring in a new simple risk warning;

'don't buy this product'.

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Richard Butler

Jan 31, 2013 at 08:31

Fraid so, Sam. Guess what - I can't find it now!!! Site is hopeless

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Steven Youngs

Jan 31, 2013 at 08:33

Sam.

Check this link on the MAS site under the heading 'How to choose a financial adviser or annuity broker' - https://www.moneyadviceservice.org.uk/en/articles/when-and-where-to-get-pensions-help-and-advice - & you will see that Richard is correct.

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RR

Jan 31, 2013 at 08:33

I trust that the FSA will also be looking at the exorbitant fees being paid to some IFA's for introducing business which, if there was a level playing field on fees, would undoubtedley lead to higher annuities.

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Sam De Zoysa

Jan 31, 2013 at 08:44

@RR

With respect any fee is acceptable if the advice delivered can be justified. I'm pretty sure if the average life expectancy of the UK was 67 and interest rates were 8% annuity rates would be higher. What is the point that you are driving at?

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Paul Barnard

Jan 31, 2013 at 08:55

I think some expansion on the "exorbitant fees" needs to be provided by RR as I too haven't a clue what he/she is driving at. I have followed that link and the public are indeed encouraged to use firms with "at least 25 dedicated annuity specialists". How many IFAs have such a team - they don't know either as there is no register.

So, being qualified isn't enough, there needs to be 25 of you apparently.

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Richard Butler

Jan 31, 2013 at 09:06

I don't know why you need 25 dedicated people or why they need to be quakified. The site also says that pensions aren't as complicated as they might seem. 38 years in the business tells me something different!

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Anitaki

Jan 31, 2013 at 09:29

The problem is that people DO want independent advice

They want it for FREE

Because they can pop into their bank and get free advice, they can go in and discuss the letter they've received about their old Allied Dunbar policy etc.

The bank employee is working to achieve a target, and there is no commission to be made discussing a maturing pension from a defunct provider

So the punter leaves the bank with the impression that going ahead with what is offered in the letter he received is the easiest option (as he now knows any further advice from any other party will have to be paid for)

Whereas, on the old commission system, an IFA had to prove he was able to get a better annuity, now the musical chairs have all been moved by the stupid, myopic FSA and the client is generally disadvantaged with annuity purchase since RDR.

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RR

Jan 31, 2013 at 09:40

My comment is base on actual experince where the likes of HL have historically recieved 7% for arranging an annuity with Aviva whereas the stardard terms offered to most IFA's is 1-1.5% at best.

If these excesses of remuneration where put back into the annuity rate i suggest annuities would be higher than they are today in the open market.

I am also sure that HL is not the only firm being offered preferetial terms in the market place.

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Sam De Zoysa

Jan 31, 2013 at 09:56

I have to confess to not being yet in the at retirement space (give it a few more years!). I'm not really clear if you have a dog in this fight? Are you a pensioner that subsequently found out that HL had taken a fee/commission of 7% or an adviser? If the latter, surely you should be shouting from the rooftoops that you offer a comprehensive and vastly better value independent service as compare to behemoth from Bristol?

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Paolo

Jan 31, 2013 at 10:03

HL almost certainly receive the most preferential terms. Additionally, HL are most likely to be the only "adviser" (using the loosest possible definition) who can offer a dedicated annuity team which fits the MAS "advice" (again loosely defined) on size.

Coincidentally, HL have the most prominent lobbyist walking the corridors of power. Go figure.

My experience of working with a wide range of specialist and reputable annuity desks is that size is irrelevant. By the way, the use of the phrase "dedicated team " employed by HLs broking sales operation would definitely stretch the dictionary definition to the extreme!

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Short of Understanding

Jan 31, 2013 at 10:10

This is the self-same bunch of clots who keep pushing for Solvency 2 which requires even more capital to back annuity business, for which the punter pays. Plus as many have said, we have EU gender neutrality and most of all Big Mervyn and his QE tricks.

Frankly, any report that doesn't come back saying that quango-based interventions are screwing up people's lives will be pitiful and incompetent. Nevertheless they'll find some feeble tickbox inadequacy at an insurer and fine the living hoolies out of them to deflect from their own culpability.

George Osborne and your Treasury team; ask yourself this. FSA/FCA - why?

Yes. I am angry.

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Lyndon Edwards

Jan 31, 2013 at 10:46

Isn't this a wonderful smokescreen for the real nub of the question? Never mind the lack of advice and Anitaki's and others' very relevant comments above. I have asked for many years why it is that the annuity provider keeps the proceeds of the annuitant's fund after death. In simple terms; if I hand over (say) £100k pension fund for annuity purchase, it's my understanding that the provider buys gilts to guarantee the income. Gilts mature at a face value which is then returned to the purchaser; ie: the provider. Why? That's a very nice little earner and I'll bet it isn't clearly separated out on the balance sheets or accounts. If that's not the case, where does the money go? Can someone put me right on this? No wonder HL can be paid up to 7% with that projected capital inflow!

Another point.

Given the straitened times we are in, why doesn't the Treasury require the return to them of these funds from the C/O contributions after all beneficiaries have died? After all, the Treasury has made a fair contribution to the pot. I once mentioned this to a consultant from a well known annuity provider. He reeled back in utter horror at the thought!

I would be delighted to be told I'm wrong, but if the providers don't keep the matured gilts, who does, and where does the money go?

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Paul Barnard

Jan 31, 2013 at 10:53

It cross subsidises the rest of the annuity pool, hence the problems with mortality drag as people live longer and a potential drawback for drawdown where this cannot happen. Pretty basic FPC stuff really!

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BGM

Jan 31, 2013 at 10:57

Eh, so you want the annuity provider to give an open ended committment to pay the annuity for the lifetime of the annuitant, which could easily be for another 40 years, but if the annuitant dies early then you want the purchase price to be returned as theuy haven't had their money's worth. Do you actually have any idea how insurance works?

Considering the capital backing required to sell annuities I am shocked there are still any companies left in the game. You won't find any of the new model wrap providers selling their own annuities as they just cannot afford to tie up the capital necessary in their balance sheets.

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Simon Kershaw

Jan 31, 2013 at 17:03

If this exercise is to have any meaning whatsoever the FSA needs to realise the ignorance of Joe Public. Vesting pension benefits is probably the single most important financial decision an individual has make in their economic life. Why then are they able to buy an annuity from their host office? If Standard Life, Scottish Widows, Scottish Equitable are providing competitive annuity rates then make them compete via mandatory O.M.O. The fact is that they are fleecing large amounts of money off supine captive policyholders.

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The Other Side

Feb 01, 2013 at 07:52

It really is quite simple. Prove that you are adding value to the client, by getting them a higher annuity rate on the Open Market, majoprity of cases will have health issues that the likes of Standard life won't offer.

Take the fee from the product (no different to how commission has worked since the dawn of financial time(s) it's just shown differently). YOu get paidm, client gets a better rate, voila!

@Lyndon Edwards, great idea, except for the part where the insurance companies will probably go bust as they lose money on those that live longer, whilst they also lose money on those who shuffle off early because thye have to pay money back.....

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