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Monday, 9 November 2015

SHOPPING AROUND DOESN'T WORK

The great thing about déjà vu is that if you wait a year or two it happens again.

The FCA wants a 'shopping around point' to make sure that customers are not sold poor value drawdown schemes when they exercise their pension freedom. 

Here are the eleven occasions from 2001 to 2014 that the Association of British Insurers promoted 'shopping around' to ensure people got a better annuity deal. They all failed.
  1. 8 August 2001 ABI Code of good practice on pension maturities. Tell customers they can shop around.
  2. January 2006 ABI issues a revised statement of good practice on pension maturities. Tell customers more clearly they can shop around.
  3. 10 July 2008 Improved customer information “highlights the potential benefit of shopping around”.
  4. 26 May 2009 ABI guide: People Need Pensions. Includes information on the importance of shopping around.
  5. 17 January 2011 ABI publishes a new guide – to help customers shop around.
  6. 20 December 2011 Consultation on providing a statement on benefits of shopping around.
  7. 7 November 2012 Consultation on annuity rate transparency to help people shop around.
  8. 5 February 2013 – ABI publishes – a guide to shopping around for retirement income
  9. 1 March 2013 – Code of Conduct on retirement Choices includes publishing the information people need to shop around.
  10. 21 August 2013 – publishes specimen annuity rates to give some idea of the benefits of shopping around.
  11. 10 March 2014 – ABI Minimum standards including A Conversation, A Comparison of quotes, Health and lifestyle information – oh and shopping around.
The regulator was no better. More than a decade spent relying on customers shopping around to do its job for it. 

  • August 2001 FSA Buying a pension annuity disclosure must say “by shopping around policyholders may get a better deal."
Twelve and a half years later
  • 1 February 2014 FCA Thematic Review of AnnuitiesChapter 2 The benefits of shopping around.
These plans were all put out after evidence revealed - if you can reveal the same thing a dozen times - that people were getting the wrong annuities and, guess what, they were the most profitable ones for the firms that allowed customers to drift into buying them.

After more than a decade of failure by the pensions industry to avoid widespread mis-selling of inappropriate annuities, George Osborne cut through the Gordian knot and announced pension freedoms in his March 2014 Budget. That happened just after the latest doomed attempts to promote that empty journalistic trope 'shopping around'.

Instead of innovation, the industry has just replaced expensive annuities with drawdown which comes with no guarantees and is often even more expensive.

So instead of mis-selling of annuities we have blanket 'non-advised' selling of expensive drawdown products.

And now the regulator wants 'a shopping around point' to solve the problem of expensive drawdown, as this report shows 

'Speaking at the Westminster Employment Forum in London last week, FCA director of competition Mary Starks said: “We’re very conscious that if we see a significant increase in  people not moving around in retirement, and in buying drawdown from existing providers we will have to look very hard at how we can make comparisons easier and step in to break the link between the provider and the retirement phase by prompting a shopping around point.”' (Money Marketing 9 November 2015)

Wow. A shopping around point. Something that didn't work in 2001 (twice), 2006, 2008, 2009, 2011 (twice), 2012, 2013 (thrice), or 2014 (twice). Now retrod for 2015 by the regulator. The financial firms will earnestly agree and nod wisely while they grin from ear to ear.

This time it is not a mis-selling scandal but a mis-buying one as financial firms carefully distance themselves from offering anyone advice. 

So ultimately those exploited will be blamed. And the pensions industry will be left alone to count its profits.

9 November 2015
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