The regulator has raised concerns about shrinking competition in the retirement income market post-pension freedoms, warning the problem could get worse still.
The Financial Conduct Authority (FCA) said in its Sector View paper out on 18 April the lines between pension accumulation and decumulation had become increasingly blurred, which posed a challenge for new entrants into the market.
"The blurring of the line between accumulation and decumulation means there is no single trigger point for challengers to target potential customers," the FCA warned.
According to the FCA only a handful of workplace and pension providers currently dominate the decumulation market. Of the 17 providers offering annuities it found the top five had a 68% share of the market, while for drawdown products the top five claimed a 43% share.
As a result, the FCA said, this could lead to a focus on "consumer retention at the expense of product innovation" among existing providers.
It said this development was due to a more unsecure labour market and the decline of traditional retirement behaviour.
It warned competition in the sector could be further reduced as the industry settles down post-pension freedoms and lines between accummulation and decumulation provision become blurred further.
The FCA said this perceived shift towards the decumulation market would present a focus in its 2017/18 Business Plan.
It had already led a retirement outcomes review of non-advised sales, initially launched in July 2016, for which it will publish an update in the summer, with the final report to be published at the beginning of 2018.
The FCA is currently in the process of launching a review of non-advised drawdown. The review will assess a sample of firms to see if adequate information is given to consumers before and after the sale of a non-advised drawdown product to ensure the end decision "supports good outcomes".
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