Call for sweeping reforms of UK annuities market An influential consumer group is calling for sweeping regulatory reforms of the £12bn-a-year annuity market after a year-long study warned that millions of pensioners stood to lose out in retirement. In a report published on Monday, the Financial Services Consumer Panel, an independent statutory body set up to represent consumers, calls for both the government and regulator to act. Each year more than 400,000 people turn their lifetime savings into a secure income in the form of an annuity, which pays a guaranteed income for life. However, annuity sales are expected to double over the next few years, due to the impact of maturing pension plans and the introduction of auto-enrolment. The panel's study, which comes a month after the pensions minister accused insurers of making "excess" profits from some people who are about to retire, found savers were "poorly placed to drive effective competition" in the annuity market. The study found that consumers were inhibited by low financial capability, fear of product complexity, mistrust of professional advisers, and an inability to find appropriate advice at acceptable cost. The study noted that savers had an increasing awareness of the open market option, or their right to shop around rather than simply "rolling over" with their savings provider, but found the degree of "true consumer engagement" in this process "was questionable." "Annuitants may "shop but stop," put off by complexity, information overload and the perceived cost of a full-scale search . . . complexity is systemic," found the report. The panel noted that industry efforts to boost the numbers shopping around, with initiatives, such as the code of conduct introduced by the Association of British Insurers (ABI) "may prove helpful," but relied "on effective enforcement by the ABI and may overload consumers with information." "The chances of mass consumer detriment are, in our judgment, too high to trust to current market-driven solutions alone," said the panel. Hence our recommendations are for further regulatory and government-led structural reform. The report also noted a recent rise in the sale of annuities from execution-only websites, where there are fewer consumer protections in place compared to a sale through a regulated adviser. "The increase in non-advice sales appears to be driven by light-touch regulation and higher profit margins, not consumer demand," said the panel. We urgently need to reform this market, particularly for those with smaller pension pots, who usually can't get independent advice. The panel had also made a number of recommendations to both the government and the Financial Conduct Authority, including: ● The FCA should undertake a rigorous market study to examine "possible exploitative" pricing of "rollover" annuities sold by insurance companies to defined contribution customers, who have saved with them for a pension ● Establish rules and required standards for a code of conduct in the non-advice market ● Introduce a national default annuities service that meets prescribed standards. ● Amend tax rules that prevent those with several small pension pots, together worth more than £18,000, from taking their pension as a lump sum ● Require employers and trustees to establish a non-advice service that meets prescribed standards for members of workplace schemes. "Our recommendations are intended to make choosing the right annuity more straightforward," said the panel. The FCA is currently undertaking a review of competition and pricing in the annuity market, which is expected to conclude in April.