* Watchdog sees risk of unfair profit maximisation
* FCA opens competition probe into wider retirement market
* FCA says not clear yet if any enforcement action needed
* Pensions campaigner says watchdog must act straight away
By Huw Jones
LONDON, Feb 14 A part of Britain's pensions
market is disorderly with insurers maximising profits and
failing to give the best deal, according to a watchdog review
that drew criticism for ruling out immediate reforms.
The Financial Conduct Authority's review of annuities, where
a pot of money saved over a working life is swapped for an
annual income until death, found too little competition.
The findings come at a time when the government wants more
people to save for their retirement as they live longer and
national coffers can't afford generous state pensions.
About 420,000 annuities worth 14 billion pounds ($23
billion)are sold each year with each purchase irreversible.
Four out of five people would be better off shopping around
to boost annual income by 71 pounds from an average pension pot
of 18,000 pounds, the review found.
About 168,000 of the annuities are bought from the insurance
company a customer has saved with, and the company makes far
more money out of them than from annuities sold to savers from
"The FCA believes there is a risk that providers may
unfairly try to retain existing customers to maximise profits,
so it will explore this in greater details in the next market
study," the watchdog said in a statement.
Many annuity providers don't offer better terms to people
who are ill or smoke and not expected to live as long, and it
also found poor practices on all annuities comparison websites.
"All together this paints a picture of a disorderly market,"
Pensions Minister Steve Webb said in January that annuities
"need a rethink" as they were designed for a world in which
people lived for ten years after retiring, not 30 years.
The minister is to propose draft legislation, as part of his
"defined ambition" pension reform programme, that would allow
creation of collective pensions in which savings would be pooled
into funds that would provide a retirement income, negating the
need to buy an annuity.
NO BIG CHANGES YET
The FCA was launched last year specifically to protect
consumers better and end the country's stream of mis-selling
scandals spanning three decades.
It has powers to intervene much earlier than in the past,
such as by banning products or forcing changes in practices.
So far banks have been in the firing line for mis-selling
products like payment protection insurance (PPI) for which they
have set aside over 20 billion pounds for compensation.
The FCA said they still cannot say if there has been
mis-selling in annuities, a sector dominated by big insurers
like Standard Life, Aviva, Prudential and Legal & General.
The watchdog said it will now study sales practices, open
its first competition probe in the wider retirment market, and
require comparison websites to make changes.
Despite the review's damning findings, the watchdog has
decided not to order immediate structural changes to the market,
take enforcement action or require new sales practices.
Watchdog officials said pensions were a complex topic and
more data was needed before deciding if any rules have been
broken or whether major market changes are needed.
"We are not yet in a position to say if firms are operating
inappropriately, and we will look into all of these aspects over
the next six months," said Nick Poyntz-Wright, FCA director of
long-term savings and pensions.
Fines for poor sales practices can be hefty with the FCA
fining Lloyds bank a record 28 million pounds in
December for encouraging staff to sell 2 billion pounds of
products customers did not need.
The FCA said any big reform would not come until at least
after its review into annuities sales practices is published in
the summer, when it will also have preliminary findings from its
"I am certainly disappointed that the FCA is not acting
immediately - every day that goes by risks more people buying
the wrong product for life and never being able to change it,"
said Ros Altmann, a pensions campaigner and former Downing
"This market is failing customers and so is the regulator."
The competition probe will be completed by early 2015.
Structural changes appear inevitable as FCA officials said
requiring more disclosures would simply drown customers in more