The Financial Conduct Authority (FCA) announced plans today to examine how effectively competition is working in the retirement income market following the introduction of pension reforms in April 2015.
According to the Retirement Outcomes Review (ROR), the regulator is concerned that increased flexibility, product complexity and "opaque" charges could make it harder for consumers to compare products and shop around, weakening competitive pressure on firms.
In addition, firms seeking to meet mass market consumer demands need to ensure that they develop appropriate distribution and guidance arrangements.
Christopher Woolard, director of strategy and competition, said for a competitive and innovative market it would be "crucial" for such a market to allow consumers to "engage with their options, shop around, and switch providers where appropriate".
"We also want firms to compete hard for business, offering good outcomes for consumers through lower prices, products and services that meet customer needs, better customer service and wider choice," he added.
The review will focus on four key areas: shopping around and switching; non-advised customer journeys; firm business models and barriers to entry; and the impact of regulation on retirement outcomes.
The regulator is seeking views from the industry and stakeholders and comments should be submitted by 31 August.
The paper is a follow-up to a previous report published in March 2015 entitled Retirement Income Market Study (RIMS), which identified a number of issues about consumer decision-making over pension freedoms.
The watchdog has also published a market update on the results of a remedy proposed in RIMS on behavioural testing of the annuity comparison.
Although annuity sales have fallen since the introduction of pension freedoms, significant numbers of consumers are still choosing to buy an annuity, said the FCA.
For these customers, RIMS proposed creating an annuity comparator to improve competition and help them get a better deal when purchasing a guaranteed retirement income.
The testing showed that depending on a variety of circumstances, the comparator increased shopping around from 13% to 40%.
The FCA considers the annuity comparator as "an effective remedy" and plans to consult on necessary rule changes later this year to introduce this as a requirement for firms.