The Financial Conduct Authority (FCA) has opened a consultation into the way the Pension Wise guidance service will approach the impending extension of the Government’s retirement freedoms. From April 2017, people already in receipt of an annuity will be able to sell their policy in exchange for a cash sum.
As with the existing Pension Wise guidance given to over 55s wishing to access their retirement savings, the guidance given to existing annuity holders should be “impartial, consistent and of good quality across the range of delivery channels”, and should “create consumer trust and confidence in the designated guidance providers and in the content of the guidance.”
Staff giving Pension Wise guidance will need to understand:
• The options for selling annuity income, and how a consumer should go about doing this should they decide this is their best option
• How the annuity market operates in general
• How to assess whether the amount a consumer is offered for their annuity is good value, and what the impact of fees and charges is in this area
• The tax implications of cashing in an annuity
• When there will be a requirement to direct a consumer to sources of professional financial advice – it is expected that there will be a minimum annuity value above which professional advice must be sought before selling, however the level of this threshold has yet to be determined
• The risks associated with selling an annuity
• The impact issues such as long term care needs, sustainability of income throughout retirement, life expectancy and eligibility for means tested benefits would have on any decision to sell an annuity
• How to deal with vulnerable customers, such as those with mental capacity limitations
The FCA will once again be required to monitor the quality of the service being provided by the Pension Wise delivery partners, which at present are Citizens Advice and The Pensions Advisory Service.
Of course the financial advisory sector will continue to present itself as an attractive alternative to the Government’s free guidance service. Once the new annuity freedoms are in force, the UK’s financial advisers will face additional challenges when deciding what option to recommend to their older clients. The generally accepted view at present is that most annuity holders should be advised to remain with their existing arrangement. With this in mind, brokerage firm Hargreaves Lansdown has said it will not be participating in the secondary annuity market, and has called for consumers to be prevented from cashing in an annuity unless they seek guidance or professional advice first.
Tom McPhail, head of retirement policy at Hargreaves Lansdown, said:
“For anyone not paying for advice before selling an annuity, a consultation with Pension Wise should be mandatory. The particular risks in this market are such that an independent sense-check from either a qualified adviser or from Pension Wise is a small inconvenience for the small number of investors who are likely to go ahead with such a transaction.”
The consultation closes on October 4 2016, and final rules and guidance are expected to be published before the end of the year.
The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article.