Annuity providers must prompt customers to shop around from March, says FCA

The notification must also include a "clear and prominent warning" that customers should consider whether they are eligible for an enhanced annuity before purchasing a product, the FCA said, in response to a consultation on information prompts.

Firms will have until 1 March 2018 to introduce the new wording, but can do so sooner if they choose to do so, the FCA said. It had originally proposed bringing in the new requirements from September.

The prompts are intended to address a lack of competition identified by the FCA in its retirement income market study in 2014. The FCA found that 60% of savers purchased an annuity from their pension provider, despite the fact that up to 80% of them could get a better deal on the open market.

Although the number of annuities purchased has fallen since the introduction of the pension freedoms in April 2015, sales remain at a "significant" 80,000 per year, according to the FCA. Of these, a "significant proportion" are still being made to firms' existing customers, making improving competition an "important objective" for the regulator, it said.

Firms will be required to produce an information prompt in relation to every guaranteed quote provided by either an annuity provider or an intermediary. The prompt should be set out in a format prescribed by the FCA on a single sheet of A4 paper, unless the customer has requested an accessible format.

The prompt should include the amount being used to purchase the proposed annuity, whether the product is single or joint life and whether the income paid by the annuity will be guaranteed for any period or will increase in line with inflation or another specified rate. It should show the provider's own quote, whether the customer could get a higher annual income elsewhere, what that higher income is and the difference in pounds and pence between the two quotes. It should also include the link and telephone number for the Money Advice Service, or any body that later replaces it.

The FCA will not require providers to indicate from where the higher quote can be obtained, although firms will be able to do this if they choose to do so. Once the information prompt is in force, it will monitor whether more consumers are choosing to switch providers and, if not, consider whether to make the provision of this information mandatory. It is not intending to require firms to compare their annuity quotes with other types of product the consumer might be able to purchase with their pension pot, such as a drawdown product. It will revisit this as part of its ongoing Retirement Outcomes Review, according to its response.

Plans to extend the same disclosure requirements to telephone sales have been amended by the FCA following consultation. Rather than require firms to provide a comparison for every quote given during a telephone call, they will only be required to do so once the consumer has confirmed that they would like to proceed with a particular guaranteed quote.

"This measure gives the consumer the benefit of the information prompt while reducing the risk of disengagement," the FCA said.