Government reforms and rapid market changes have led to reduced consumer choice on pensions, according to a report from the Pensions Institute.
Since the introduction of pension freedoms in 2015, which allows savers over 55 to access their savings, there has been a "dearth" of new products that offer flexibility and guaranteed income, the report stated.
It added the industry has also struggled to adapt to regulatory and technological change.
Sponsored by Phoenix Group, the “Meaning of Life 2” report is authored by journalist Pádraig Floyd, who argued that in a few years’ time there is the real prospect that there could be no life insurance companies providing annuities.
“This will result in the state having to bail out those who outlive their pension assets," Mr Floyd said, with elderly citizens reliant upon the government in their old age.
The report said the life industry is being divided in two, with one group of companies retaining the traditional risk-based model of providing annuities, and the other group moving to an asset management structure, which is less capital intensive, in order to avoid the increased capital costs under Solvency II – a new European regulation for the insurance sector.
This process is triggering faster industry consolidation but also limiting choice in the retirement market, the research said.
Mr Floyd called on the government to address all regulation regarding retirement in a more holistic fashion, since there is a fragmented approach which is undermining the spirit of pension saving.
The current policy is giving with one hand, with auto-enrolment and pensions freedoms, while taking away with the other, with the different allowances in place, and conflicts with the policies of other Organisation for Economic Co-operation and Development (OECD) nations, the report said.
The research also points out that technology is the key to providing scale and achieving necessary critical mass on platforms.
It said: “Many institutions have been building platforms but few have achieved the scale to be profitable.
“The quality of platform systems is mixed and the technology lacks a coherent approach to industry data standards.”
William Burrows, retirement director at Better Retirement, said the most important question isn’t the lack of choice, but the advice gap.
He said: “The government and the Financial Conduct Authority don’t appreciate how serious this issue is.
“People want help, they need guidance, they need advice. But the challenge is to demonstrate to the public the value of advice.”
maria.espadinha@ft.com
