The Financial Conduct Authority (FCA) today announced plans to require annuity providers to inform their customers about how much they could gain from shopping around and switching provider before they buy an annuity – guaranteed income for life.

While the number of annuities purchased has fallen since the introduction of pension freedoms in April 2015, the FCA said that “sales remain significant” at a rate of roughly 80,000 a year.

And as annuities are more likely to be purchased by older people, shopping around could mean a 6.7% difference in lifetime income achieved.

The FCA also previously found that 60% of customers were not switching providers when they bought an annuity and up to 80% of these customers could get a better deal on the open market.

As a result, the FCA recommends an “annuity comparator” be used, providing customers with an information prompt before an annuity is bought.

This would require firms to include a personalised form, showing the difference between their own quote and the highest quote available from all other providers on the open market.

It also wants to see providers include a link to help the customer access the best quote.

Firms will also be required to provide the following:

• Details of whether the annuity is a single or joint life product.
• Whether the rate of income paid by the annuity is guaranteed and the total pot that will be used to buy the annuity.

The FCA has proposed the new rules will come into force in September 2017.

Tom Selby, senior analyst at AJ Bell, said: “Millions of savers have already lost out on thousands of pounds in retirement income by failing to shop around for the best annuity rate. The decision by several major providers to pull out of the open annuity market since the pension freedoms were announced in 2014 raises serious concerns about a lack of competition and the impact this could have on the rates offered to savers.”

Selby said that arming people with information about annuity deals available elsewhere should help “redress the competitive balance in the annuity market” and “hold insurers’ feet to the fire” when it comes to pricing.

“The effectiveness of this measure will depend on the extent to which consumers actually read and react to the information provided, so policymakers must closely monitor how shopping around figures change following its implementation,” he added.