‘DON’T worry,” the UK’s big pension firms have insisted several times over the past decade. “We’ve got it covered.”
Payday lenders said the same two years ago, while the banking industry kept a straight face when it reassured the world’s financial regulators that markets were efficient and self-regulating.
Anyone with a modicum of common sense knows full well, of course, that such arrangements only work in the interests of those doing the self-policing. The long-suffering customer rarely comes into it.
Last week the Financial Conduct Authority (FCA) revealed that it plans to replace the code of conduct on retirement choices that the Association of British Insurers (ABI) introduced last year. In other words, the regulator is telling the industry trade body that its attempt at voluntary regulation has been a miserable failure, allowing the exploitative practices of so many providers to go unchecked.
The code of conduct placed the responsibility on the ABI’s members – virtually the entire life and pensions industry – to provide “clear, timely information” for people nearing retirement and encourage them to explore their options well in advance. In reality, however, the code was primarily designed not to help consumers but to stave off the introduction of more comprehensive rules.
We’ve known for years that pension firms fail to treat annuity customers fairly. They’ve been allowed to sell customers poor-value contracts and duck their responsibility to tell them they have the right to shop around for a better deal.
Now nothing short of breaking up the market entirely so that consumers can only buy annuities on the open market will be sufficient to bolster confidence in the product.
And it’s vital that people see annuities as offering good value. They still offer what most people want from their pension pot: a guaranteed income throughout retirement. Unfortunately, many people for whom they are the ideal solution will instead be gambling by taking advantage of rules coming into force in April allowing them to take their savings as a cash lump sum.
The industry had insisted it was capable of putting its own house in order. But self-policing invariably equates to self-interest.
Two years ago payday lenders launched a code of conduct that included a commitment to better transparency, more help for struggling borrowers and robust credit and affordability assessments. The outcome was a raft of broken pledges as payday lenders continued to operate unchecked. Since April they’ve been subject to genuine regulatory scrutiny, with the result that all but a handful of payday lenders will soon be out of business.
The inevitable shortcoming in self-regulation is in the lack of adherence to it. The FCA found that some firms were simply ignoring the ABI’s much-trumpeted and “compulsory” code of conduct.
That the likes of pension firms and payday lenders were ever trusted to put their own houses in order is astonishing. Now it’s up to the regulator to finally act with the urgency and resolve that it has demonstrated with payday lenders but which has been sorely lacking when it comes to annuity providers.