Nick Flynn: Will FCA Consumer Duty rules finally fix OMO?

Jenna Towler
clock • 3 min read

Nick Flynn explores FOMO - fear of the open market option - something he hopes will be overcome when the FCA implements its Consumer Duty measures...

'If it ain’t broke, don’t fix it.’ Well, there has been plenty of attempts to fix the annuity market, encouraging savers to shop around to get a better deal from their pensions at retirement.

And yet since 1978, when the Open Market Option was introduced in the Finance Act, millions of savers have chosen the ‘best’ deal on the table from their incumbent pension company rather than look to find a better deal elsewhere.

Perhaps blinded by the complexity of choice, or an affinity with the pension brand built up over decades, why wouldn’t you trust the same company to reward you with the best deal when choosing your retirement income?

This fear of the Option Market Option - or FOMO if you will - is costing savers dearly.

Financial Conduct Authority data of the retirement market shows two out of five savers, or over 60,000 savers, who chose an annuity last year failed to seek guidance or advice and are, therefore, likely have been locked into a poor – and irreversible – deal.

Freedom and choice

Of course, the pension freedoms were heralded to address the value question of getting the best bang for buck from your annuity. Which clearly hasn’t worked.

In a further attempt to change consumer behaviour, in 2017 the regulator introduced annuity information prompts. At the time, Christopher Woolard, executive director of strategy and competition at the FCA said: “Although sales have declined since the pension freedoms were introduced, annuities still play a significant role in retirement provision. It’s important that consumers shop around to get the best deal for them - yet our previous work found that very few people did so.

“We believe that the proposals we have outlined today will engage consumers and allow them to make better decisions, increasing shopping around and competition across the market.”

Yet despite all the market change and disruption, people still fail to seek the best value from a market worth £4bn annually.

Sadly, as our recent research evidences, the fear of the open market option costs savers on average £7,700 in lost income over a 20-year retirement from a relatively modest £60,515 annuity purchase. And our figures are likely to under-represent the scale of the problem as they are based on the rates published from the providers competing in the open market.

Consumer Duty

Which brings us bang up to date with the latest consultation hot off the press from the regulator. CP21-13 ‘A New Consumer Duty’ might well mark the tipping point for the annuities market and finally lay to rest the challenge of consumers getting the best value from their pensions by way of a lifetime income.

I quote directly from the consultation paper: "In essence, we want to see firms putting themselves in their customers’ shoes, asking themselves questions such as ‘would I be happy to be treated in the way my firm treats its customers?’, or ‘would I recommend my firm’s products and services to my friends and family?’."

That appears unambiguous to me. The regulator wants to see "a higher level of consumer protection in retail financial markets, where firms are competing vigorously in the interests of consumers".

‘TCF2’ feels like a leap forward in addressing the significant legacy of decades of creating poor consumer outcomes in the annuities market. The consultation closes at the end of July. 

Nick Flynn is director of retirement income at Canada Life

More on Featured

How advisers deal with the power of online customer reviews   

How advisers deal with the power of online customer reviews   

Number of ‘cold’ enquiries received from online research increases

Julia Bahr
clock 22 February 2023 • 4 min read

Chris Read: Onwards and upwards

Thankfully, lockdowns are over (for now) and it's time to emerge from our caves, writes Chris Read in his final pandemic-penned column for RP

Jenna Towler
clock 07 October 2021 • 5 min read

RP case studies: Ill-health early retirement

Jessica List looks at an ill-health retirement case study where a SIPP comes in handy...

Jenna Towler
clock 06 October 2021 • 4 min read


Editor's View: Round yon platform, pricing that's mild

Editor's View: Round yon platform, pricing that's mild

The editor's Friday Night Takeaway from 1 December

Hope Coumbe
clock 01 December 2023 • 1 min read
Could Consumer Duty push asset managers out of UK retail market?

Could Consumer Duty push asset managers out of UK retail market?

Compliance will weigh more on those with global businesses and offerings

Cristian Angeloni
clock 01 December 2023 • 10 min read
Viticulture to adviser: Rachel Sartin on the terroir of advice

Viticulture to adviser: Rachel Sartin on the terroir of advice

Chartered adviser Rachel Sartin’s career has matured like a fine wine

Jenna Brown
clock 01 December 2023 • 6 min read