Urgent regulatory and government-led structural reform is needed in the "complex" annuity market, the Financial Services Consumer Panel (FSCP) has found.

The panel conducted a 12-month study and found that the annuity market is failing to deliver good outcomes for many consumers and highlighted the fact that there is a shift towards purchasing annuities via 'non-advice' routes, which means reduced consumer protection if things go wrong.

As part of the FSCP's recommendations, the panel said that the Financial Conduct Authority (FCA) should strengthen the definition of the open market option, and that it should undertake a "rigorous" study to examine the "possible exploitative pricing of annuities sold by insurance companies to their defined contribution (DC) customers who have saved with them for a pension".

The panel also recommended that the Government should require employees and trustees to establish a non-advice service for members of workplace schemes, and ensure this adheres to the code of conduct.

The FSCP's findings have been welcomed by the National Association of Pension Funds (NAPF).

Helen Forrest, NAPF head of policy, said: "The NAPF has long been very concerned about the annuities market. We published a joint report with the Pensions Institute in February 2012, which found that millions of people saving in DC pensions for their retirement are stuck having to navigate through an unfair and opaque annuity system.

"This system lops off up to £1bn pension incomes every year as people buy annuities that do not match their circumstances. It also uncovered evidence of murky pricing in the annuity market, putting unsuspecting consumers at a huge disadvantage.

"We welcome the FSCP's report on the annuities market. The issues it highlights are particularly important, given that an annuity purchase is irreversible and determines a person's income for the whole of their retired life."

First published 12.12.2013

monique_simpson@wilmington.co.uk