Providers will be responsible for checking retirees have received the government-mandated advice before they sell their guaranteed income in the developing secondary annuity market, the Financial Conduct Authority has announced.
The secondary annuity market brings “significant risk of poor outcomes for consumers”, the Financial Conduct Authority (FCA) has warned in its latest consultation paper.
Reforms unveiled in December will allow people drawing annuities to sell their contracts from 6 April 2017, extending pension changes announced in the Budget two years ago.
More than five million people will be eligible from next April, with millions more to come as the reforms will also be open to those buying an annuity in the future.
In a consultation paper released today (21 April), on proposed rules and guidance for the secondary annuity market, the FCA stated it requires the annuity provider to check whether compulsory advice has been taken alongside the other checks they must make before facilitating a sale.
For example, this means checking consent has been given by beneficiaries where necessary.
The annuity provider will be required to receive confirmation advice has been taken before a sale is allowed.
According to the regulator, if the advice received is not to sell, this is no reason for an annuity provider to refuse to facilitate an assignment, or execute a buy back.
There may not be any authorised annuity providers in some transactions, because the seller received annuity income from an overseas annuity provider.
However, in these instances the rules will ensure that another FCA authorised firm will carry out the check instead, where it is present.
The FCA has proposed to make rules requiring that at first contact with their annuity provider about selling their guaranteed income all sellers should be informed about the legal requirement to take advice in some circumstances.
But it also wanted a recommendation to take advice even where there is no requirement to take it.
Seller must also be given a recommendation to take Pension Wise guidance and be given a recommendation to shop around for the best value when selling their annuity income.
The paper said the regulator does not intend to further specify when during the customer journey the advice must be taken.
Additionally, the FCA’s proposed rules require brokers and adviser-brokers to disclose the number of buyers, and whether they have a commercial relationship with any buyer on the panel, for example an exclusive relationship with a buyer.
The paper read: “We do not plan to prescribe a format for these disclosures, though we would expect them to be easily accessible by potential clients and in a clear format. We would also expect these disclosures to be both freely available (e.g. on the brokers website) and highlighted to sellers when they initially contact the broker.”
The regulator will require broker and adviser-broker firms to set out their charges upfront in writing, and agree with the seller, rather than being potentially paid variable commissions set by buyers.
Additionally, the regulator has proposed to make a rule stating that an annuity provider can only cover reasonable costs when charging, to help facilitate annuity income assignment to a third party, or charging for tasks that need to be carried out when buying back.
The regulator’s paper follows one earlier this week from HM Revenue & Customs, outlining how the tax framework would work for the proposed market and revealing the government expects 300,000 people will take up the option to sell existing annuities from April 2017.
FTAdviser reported earlier this month that advisers are shunning talks to develop an annuity re-sale market over fears of future mis-selling claims, in what could be a fatal blow to government plans to extend pension freedoms.
A number of pension providers are in talks about setting up brokerages.
But Andrew Tully, pensions technical director at Retirement Advantage - a provider in talks to develop ‘annuity bureau’ marketplaces for people to sell on their annuities - said early signs show advisers shunning what they see as a big professional risk.
ruth.gillbe@ft.com
