Middle-class and wealthy savers are being left thousands of pounds poorer in retirement because insurers are making excess profits at their expense, a damning report said last week.
Eight out of 10 people who reach retirement and buy guaranteed income from their existing pension providers are missing out on better annuity deals elsewhere, the Financial Conduct Authority has discovered.
The watchdog will spend the next year investigating the heavy sales tactics and deliberately complex communication material which they suspect is being used by insurers to lure baffled savers into poor deals.
Meanwhile it also appears all the bad press around annuities is scaring people away from them, as 16 per cent fewer were sold in 2013 than in the previous year. Financial advisers report an increased interest in income drawdown, through which pension investors stay invested and draw an income directly from their pension pot.
You can read stacks of information about income drawdown, at www.investorschronicle.co.uk/your-money/pensions-and-sipps/retirement-income.
Nevertheless, annuities remain the most popular option, and are often seen as the default option. But the industry is in agreement that this urgently needs to change.
Andrew Tully, pensions technical director at MGM Advantage, said: "The FCA review doesn't go far enough, or act quickly enough. This will potentially leave many thousands of retirees high and dry when navigating the annuity minefield.
"So often we see poor consumer outcomes through a lack of awareness or understanding of the options available. Although the review puts the spotlight firmly on the issues that need to be addressed, another year or two of customers sleepwalking into retirement is simply not good enough."
Alan Higham, head of retirement insight at Fidelity, says too many people buy an annuity too early in their retirement process. "The annuity is suitable for most people at some point in their life but too often it is sold as a commodity product without considering the alternatives due to the regulatory biases that exist," he said.
