“The FCA’s proposed remedies look like a step in the right direction, but the regulator also rightly recognises that they are only a beginning and will need to evolve over time. The finding that the retirement income market has not been working well shouldn’t come as a surprise to anyone in the industry.
“The FCA’s claim that an annuity at the best market rates can offer good value compared to alternative options is a timely reminder that they may still have a role to play in securing people’s retirement. However, the regulator also recognised the enormous challenge in helping people to make good decisions based on the new choices that are available. The difficulty of judging how long they might live or the impact of stock market conditions should not be underestimated, as well as the sheer complexity of understanding and comparing different options. There are also some sound, but hard to quantify, reasons why a customer might opt not to annuitise. For many customers with small pots, a minor increase in monthly income might mean less to them than having a fund on hand for emergencies.
“However, while the FCA talks about working with Government and the Money Advice Service (MAS), there is a question about whether it is missing an opportunity in not talking about how it can work with providers to get this right. The impending changes represent a once-in-a-generation chance to fundamentally rethink how the financial services industry engages with consumers, and providers are already thinking hard about how to achieve good customer outcomes. Many firms currently feel constrained by regulations that were designed for a very different environment, and would welcome an approach from the regulator that would help them to achieve better customer outcomes, but feel that they are not getting the necessary guidance.”
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