Retirement annuity firms could be forced to provide best-price comparison
Firms providing retirement annuities will have to show customers how much money they could save by shopping around before buying a deal, under the City regulator's plans.
The Financial Conduct Authority's proposals would mean firms have to show the difference between the provider's own quote and the highest quote available to the consumer from all other providers on the open market.
A link would be provided to help customers access the best quote. Customers could also be shown how much better off they could be by email or letter.
The pension freedoms launched last year mean people are no longer required to buy an annuity with their pension pot.
Annuities give people a set income when they retire, usually for the rest of their life, but they have been controversial due to disappointing rates and concerns that people have not been shopping around.
The FCA previously found 60% of customers were not switching providers when they bought an annuity - and up to 80% of these customers could get a better deal on the open market.
Despite no longer having to buy an annuity, people may still want one when they retire as the products act as a guarantee that someone will not outlive their savings.
The FCA has proposed that the new rules, which are under consultation, will come into force in September next year.
Christopher Woolard, executive director of strategy and competition at the FCA, said: "Although sales have declined since the pension freedoms were introduced, annuities still play a significant role in retirement provision. It's important that consumers shop around to get the best deal for them - yet our previous work found that very few people actually did so.
"We believe that the proposals we have outlined today will engage consumers and allow them to make better decisions, increasing shopping around and competition across the market."
Plans to allow people who have an annuity to cash them in were recently scrapped by the Government because consumers could not be guaranteed that they would get good value for money.
Due to be launched in April, the changes would have freed people to sell their annuity income. But the Treasury pulled the plug on the plans after speaking to the industry, regulators and consumer groups.
Tom Selby, a senior analyst at AJ Bell, said: "Millions of savers have already lost out on thousands of pounds in retirement income by failing to shop around for the best annuity rate.
"Furthermore, the decision by several major providers to pull out of the open annuity market since the pension freedoms were announced in 2014 raises serious concerns about a lack of competition and the impact this could have on the rates offered to savers.
"Arming people with information about annuity deals available elsewhere should help redress the competitive balance in the annuity market and hold insurers' feet to the fire when it comes to pricing.
"The effectiveness of this measure will depend on the extent to which consumers actually read and react to the information provided, so policymakers must closely monitor how shopping around figures change following its implementation."
Rob Yuille, head of retirement policy at the Association of British Insurers (ABI), said: "The pension freedoms have given savers a far wider range of options than ever before, and providers fully support efforts to encourage savers to shop around.
"Customers should have the information they need to make the right decision for them. Annuity providers will look at what the FCA has proposed and provide helpful feedback on how to make the plans work successfully for customers in practice."
Gareth Shaw, head of Which? Money Online, said: "Far too many retirees simply buy an annuity from their existing pension provider, when they could be getting better value elsewhere so plans to make it easier for consumers to shop around are a welcome first step.
"However savers approaching retirement may rightly question why they have to wait another year to get this important information that could help with a once in a lifetime decision."