Financial Conduct Authority (FCA) rules to safeguard consumers when they are allowed to sell on their annuities have been met with a mixed response by providers, with some saying the risk of mis-selling is high.
In a consultation paper on proposed rules and guidance for the secondary annuity market published last week, the FCA said it would require the annuity provider to check whether compulsory advice had been taken.
The paper followed reforms unveiled in December which will allow people already drawing annuities to sell their contracts from 6 April 2017.
Andy Bell, chief executive of Sipp provider AJ Bell, said the latest rules still raised double mis-selling risks. He claimed those who had had a bad deal first time round could get another bad deal when they sold their annuity on the secondary market.
He said: “We remain concerned that someone who has been ripped off once when buying an annuity could be ripped off again when they sell it.”
Tom McPhail, head of retirement policy at Bristol-based Hargreaves Lansdown, said second-hand annuities would be a complex market to create from scratch, but added that many annuity holders would be interested in trading in their income for a lump sum.
He said:“The FCA has come up with a good package of measures to try and protect investors, while also giving them the freedom to manage their own money. All fees and transaction costs have to be disclosed up-front; however, they could easily absorb 10 per cent or more of the value of the annuity, so this may also put a lot of people off.”
Steven Cameron, Aegon UK’s pensions director, said selling an annuity came with risks of consumers making choices in retirement they could later regret.
He said: “There is no central point for consumers to offer up their annuity to a range of buyers, with consumers instead being encouraged to approach each buyer separately to get the best deal. Each potential buyer may demand their own medical evidence, which will be timely and costly.”
Daren O’Brien, director at London-based Aurora Financial Solutions, said: “The impact will be to create extra work for us even if we choose not to be involved, as we will still have to plan why and how we deal with any enquiries and include these within our central investment process.”
Paul Lindfield, director at Manchester-based Sedulo Wealth Management, said that he welcomed the move to make providers responsible for ensuring advice was given pre-sale. He added: “It will potentially stop wholesale mis-selling by boiler house type firms in the same way as the scams being generated through recent pension freedoms.”
ruth.gillbe@ft.com
