Last checked at 
* Watchdog sees risk of unfair profit maximisation
* FCA opens competition probe into wider retirement market
* FCA says not clear yet if any enforcement action needed
* Pensions campaigner says watchdog must act straight away
By Huw Jones
LONDON, Feb 14 (Reuters) - A part of Britain's pensionsmarket is disorderly with insurers maximising profits andfailing to give the best deal, according to a watchdog reviewthat drew criticism for ruling out immediate reforms.
The Financial Conduct Authority's review of annuities, wherea pot of money saved over a working life is swapped for anannual income until death, found too little competition.
The findings come at a time when the government wants morepeople to save for their retirement as they live longer andnational coffers can't afford generous state pensions.
About 420,000 annuities worth 14 billion pounds ($23billion)are sold each year with each purchase irreversible.
Four out of five people would be better off shopping aroundto boost annual income by 71 pounds from an average pension potof 18,000 pounds, the review found.
About 168,000 of the annuities are bought from the insurancecompany a customer has saved with, and the company makes farmore money out of them than from annuities sold to savers fromelsewhere.
"The FCA believes there is a risk that providers mayunfairly try to retain existing customers to maximise profits,so it will explore this in greater details in the next marketstudy," the watchdog said in a statement.
Many annuity providers don't offer better terms to peoplewho are ill or smoke and not expected to live as long, and italso found poor practices on all annuities comparison websites.
"All together this paints a picture of a disorderly market,"FCA said.
Pensions Minister Steve Webb said in January that annuities"need a rethink" as they were designed for a world in whichpeople lived for ten years after retiring, not 30 years.
The minister is to propose draft legislation, as part of his"defined ambition" pension reform programme, that would allowcreation of collective pensions in which savings would be pooledinto funds that would provide a retirement income, negating theneed to buy an annuity.
NO BIG CHANGES YET
The FCA was launched last year specifically to protectconsumers better and end the country's stream of mis-sellingscandals spanning three decades.
It has powers to intervene much earlier than in the past,such as by banning products or forcing changes in practices.
So far banks have been in the firing line for mis-sellingproducts like payment protection insurance (PPI) for which theyhave set aside over 20 billion pounds for compensation.
The FCA said they still cannot say if there has beenmis-selling in annuities, a sector dominated by big insurerslike Standard Life, Aviva, Prudential and Legal & General.
The watchdog said it will now study sales practices, openits first competition probe in the wider retirment market, andrequire comparison websites to make changes.
Despite the review's damning findings, the watchdog hasdecided not to order immediate structural changes to the market,take enforcement action or require new sales practices.
Watchdog officials said pensions were a complex topic andmore data was needed before deciding if any rules have beenbroken or whether major market changes are needed.
"We are not yet in a position to say if firms are operatinginappropriately, and we will look into all of these aspects overthe next six months," said Nick Poyntz-Wright, FCA director oflong-term savings and pensions.
Fines for poor sales practices can be hefty with the FCAfining Lloyds bank a record 28 million pounds inDecember for encouraging staff to sell 2 billion pounds ofproducts customers did not need.
The FCA said any big reform would not come until at leastafter its review into annuities sales practices is published inthe summer, when it will also have preliminary findings from itscompetition probe.
"I am certainly disappointed that the FCA is not actingimmediately - every day that goes by risks more people buyingthe wrong product for life and never being able to change it,"said Ros Altmann, a pensions campaigner and former DowningStreet adviser.
"This market is failing customers and so is the regulator."
The competition probe will be completed by early 2015.Structural changes appear inevitable as FCA officials saidrequiring more disclosures would simply drown customers in moreoff-putting jargon.
