Barely three months has passed since the At-Retirement Bombshell was dropped by George Osborne and already we have Finalised Guidance (FG14-06)for Annuity Comparison Websites: financial promotions review and guidance for firms, published last month.
The Guidance demands that annuity comparison sites, brokers and other non-advice offerings:
1. Stop declaring that their services are free when in fact commission is paid to them by annuity providers
2. Explain the OMO
3. Explain that annuity purchase is final and cannot be reversed
4. Explain that annuity income is based on how much has been saved by the retiree and therefore varies
5. Explain that joint and escalating annuities offer lower income in retirement initially
6. Explain that single life annuities offer no further income for surviving partners
7. Explain option on consolidating pension pot before purchasing an annuity
8. Explain that there are alternatives to buying an annuity such as income drawdown, deferring annuity purchase or cashing out at certain levels
9. Restricted panels need to name the providers they have on their panel
10. Explain whether their service is an advised or non-advised offering
11. Explain that tax treatment on pensions income will vary according to individual financial circumstances
12. Explain that investment-linked annuities are subject to different charges and risks
It is easy to think that the annuity market in general, and online annuity comparison sites in particular, must be up against it as this new tighter disclosure regime hits them.
However we believe that in this period where there is a palpable need for widespread change, comparison sites and platforms also have a major opportunity to apply some of the latest scenario planning and calculations-based technologies to reinvent themselves.
Now that customers have so much choice at retirement they have never needed financial advice more than they do now in the interim period before many of the changes take effect next April - and beyond as new product options and ‘mix and match’ product scenarios emerge.
Furthermore, more and more of us are going online to do our research before buying any products (financial or otherwise) or seeking financial advice. What if annuity comparison sites can offer all the statutory advice about the options but then invite customers to consider retirement scenarios on its website?
A detailed fact find could extend to gathering key medical information which will help determine whether enhanced annuity rates are accessible for example. It could also guide users through plans for retirement, helping them to identify the gap between at-retirement aspirations and likely income outcomes, based on existing retirement savings and investments.
Much of this scenario planning could be carried out online without the use of relatively expensive financial advice – at the least while they are in information gathering mode. There is a real opportunity now to take some of that at-retirement customer journey online and put highly accessible tools into the hands of customers so that they come to an adviser much better educated and prepared. Of course if they decide to go it alone, it becomes crucial that they know that they take full responsibility for their decisions.
The latter point is still a key issue for the industry as the Financial Ombudsman tends to back consumers that think they have been advised when in fact they may have just been gathering information in a non-advice website or D2C platform. So there is definitely one final piece in the jigsaw for the regulator to clarify. They must answer the crucial question: Where does Guidance stop and Advice start?
The FCA is set to rule on this last key issue within the next month with final rules being published by year end. Once it has done so, we think the coast is clear for developing and rolling out highly effective online tools and Guidance propositions which will put consumers in a much better position to make sound at-retirement decisions based on accurate forecasts and properly worked out scenarios.
We also think that, armed with all this additional knowledge, many will still choose to ask for independent (or restricted) financial advice. Many will also still see an annuity as the best product for securing a guaranteed income through their retirement. Ideally they will also select the annuity product that suits their personal circumstances best. And with the predicted increase in innovation in product design set to reach the market also, it should become easier for customers to get an annuity-type product which meets their retirement needs much more accurately than was possible before the Budget-linked changes.
Natanje Holt is managing director of Dunstan Thomas
