FCSP urges non-advised annuities revamp

The Financial Services Consumer Panel’s (FSCP’s) report following its year-long study of the annuities market demanded a large-scale overhaul of non-advised sales.

In particular, the report found consumers are being misled by non-advised services that market themselves as being free, when in fact they are not.

On top of this, the FSCP found many non-advised services failed to disclose the lack of protection, in contrast to the protection offered by full advice.

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Any product that can still be sold on a commission basis, especially when the existence of that commission is consciously erased by the provider, works in opposition to the principles of the RDR.

One positive finding of the study was that more than half of consumers are shopping around before purchasing an annuity.

The report recommended the FCA should carry out a full overhaul of the way annuities are sold through non-advised channels and should bring in a code of conduct.

The proposed code would remove any claim that a service is being provided free of charge, and would explain that non-advised services involve a commission.

The code would require providers to accept pots of all sizes, but would contain a caveat to allow commutation of very small pots.

The FSCP also said the regulator should look into the level of profits providers are taking on ‘rollover’ annuities, ban tied arrangements under the open market option definition, and launch an investigation into the operation of introducers.

Trystan Lewis, chartered financial planner specialising in retirement options at Chester-based Griffin Wealth Management, takes a balanced view on non-advised sales versus full advice.

“I wouldn’t say consumers always get a raw deal, but it is an important decision to make,” he said.

“Nine times out of 10 when I see an annuity client, they are better off receiving advice. You go through the process of asking the medical questions, which can lead to the client receiving an enhanced annuity. That can mean their retirement income is 60 per cent higher.”