The Financial Services Authority's (FSA's) thematic review into the annuity market needs to go much further than its current remit to reflect the development the market, a provider has said.
The FSA unveiled its two phase annuity market thematic review earlier today. It consists of a pricing survey of all providers, looking to estimate the size of consumer detriment in the overall market.
Then, depending on the outcome of stage one, firm-specific assessments looking at what exactly restricts shopping around.
MGM Advantage pensions technical director Andrew Tully (pictured) said: "The FSA has missed a trick by focussing on rate, we would like the review to go much further. Looking at rates ignores the fact that the best consumer outcomes require customers finding the right solutions. The market has seen much innovation and increased choice over the last few years, meaning many more potential options are available.
"Consumers who don't shop around tend to have smaller funds and don't use IFAs, and yet, from our research, these are the very people who should be making the most of their hard earned savings.
"The most effective way to improve the market overnight would be to break the link between pension saving and annuity purchase by ending the practice of rolling over maturing pensions into internal annuities."
He added it was also disappointing the review would not cover members of trust-based pension schemes.
"It is crucial everyone approaching retirement is encouraged to shop around for the best deal, and take advice, not just those customers in personal arrangements."
The Association of British Insurers (ABI) has already instigated an industry-wide code of conduct on annuities, set to come into force for all its members on 1 March.
Stephen Gay, director of life, savings and protection, said: "The annuities market is changing with ABI initiatives set to provide people approaching retirement with greater clarity and confidence as they prepare for retirement, and we are pleased that the FSA recognises this."
He said the ABI code would ensure customers are prompted to think carefully about the decisions they need to make, encouraged to shop around and signposted to sources of advice and support.
"Several companies are also introducing new products and services to customers at retirement - resulting in more choice and competition, and more help for customers to choose the best option for them.
"With 400,000 people buying an annuity every year, it is vital that we do everything we can to enable customers to make an informed decision. ABI members will work with the FSA as it undertakes this project and look forward to its findings," added Gay.
Championing diversity in the workplace
Our weekly heads-up for advisers