The ABI's annuity provider code of conduct was introduced to improve consumer outcomes at the point of retirement. Laura Miller asks, six months on from launch, is it actually working?
Can a code of conduct drawn up by an industry body, which, by its very nature, represents its members, ever really go far enough to properly benefit the end consumer?
The Association of British Insurers' (ABI) annuity code of conduct certainly presents itself that way. But in its first six months of operation, has it really worked?
The code requires members to provide clear and consistent communications to ensure customers are able to make informed and proactive decisions about retirement income products, and are able to shop around for the most appropriate product.
Is the ABI annuity code of conduct working?
ABI members must prominently highlight enhanced annuities, and the much higher income they can potentially offer, and inform customers whether they offer these products, and how to find out who does. In addition, they must clearly signpost customers to advice and support, both from regulated advisers and government-backed advice organisations.
So after six months with these new rules, which are compulsory for ABI members but are not as yet enshrined in law, what has changed?
First Actuarial director Henry Tapper believes the consequences of insurers' self-interest will be long felt.
He said: "The legacy of seal-clubbing by insurers will have a long tail. The stable door is closing but the annuity hump is past its peak. If the insurers really wanted to show this mattered they would be investing in new products bringing drawdown to the mass market. The reluctance of the insurers to promote alternatives to their guaranteed annuities demonstrates a mentality that smells rotten."
Others are similarly pessimistic. Worldwide Financial Planning IFA Nick McBreen's view is that the whole annuity scene is at a "tipping point" and that the ABI's code does little to undress the underlying problems with the industry.
"There may indeed be some serious question marks outstanding about the relationship and communication between clients and pension fund life offices. But the bigger problem is that clients are risk averse and annuities are complex and difficult for the lay person to understand and evaluate.
"Social habit and behaviour leads many people to stick with what they know and take no action outside of their comfort zone and experience. Regulation and rule tightening is all well and good but it doesn't get to the fundamental problems."
Lack of faith
Retirement Angels director Alan Higham has seen mixed literature and practices since the ABI rules came in, and believes some providers are trying harder to retain their customers by using dubious practices. He does not have much faith in the code of conduct.
"The ABI code was designed to head off new regulations that would have forced 'shopping around' for an annuity and were not designed necessarily to be helpful to consumers so long as they had sufficient veneer on them to appear helpful."
He wants to see the Financial Conduct Authority step in, on the grounds self-regulation by the industry body – the ABI – is not in the interest of consumers.
"The step regulators need to insist on is giving clients a single page letter with the key facts on it about the need to consider all options, the value of doing so and where to get expert, reliable help. But when your [ABI] members make up to £1bn a year out of bad decisions by consumers, then the last person you want a customer to talk to is an independent expert."
Hargreaves Lansdown head of pensions research Tom McPhail believes things have improved – and that the ABI code "represents progress" – but he echoes the call for much more to be done.
"The wake-up packs have had their application forms removed, they do give greater prominence to shopping around and the open market option and the code of conduct ensures members are led through the questions regarding the need to annuitise, health, death benefits and inflation.
"However, these improvements will not result in a step-change in consumer outcomes. Hundreds of thousands of investors will continue to buy their annuity from their existing provider every year and in many cases they will miss out on a better deal, which they could have got elsewhere. In many cases, the life companies will achieve the same outcome they always have, they'll just use a slightly different process to get there."
McPhail wants a comprehensive review of the regulations and tax policy surrounding decumulation. That might be the real step that needs to be taken to actually get a fairer deal for retirees, because so far the verdict on the ABI's efforts is pretty dismal.
ABI code of conduct - the verdict
- ABI members should invest more to bring drawdown products to the mass market
- Insurers should do more to promote alternatives to guaranteed annuities
- The code of conduct does little to address the underlying problems with the at retirement market, such as the complexities of annuities and client inertia
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