Advisers and providers must ensure that they warn clients of the potential for offered rates to fall or the dangers of ignoring guaranteed rates if they eschew annuities in the lead up to April 2015, the regulator has said as it signals concern over a potential anti-annuity bias.
Yesterday afternoon (9 April) the Financial Conduct Authority published new guidance for pension providers and intermediaries on the Budget changes announced three weeks ago which radically changed pension taxation rules.
In particular the regulator said it wanted to ensure fair outcomes for those that have recently purchased an annuity or are approaching retirement in the next year, before the full reforms come into force, subject to consultation, in April 2015.
Chancellor George Osborne announced in his Budget speech that the government is set to consult on plans to offer savers access to their entire pension fund without having to pay the current 55 per cent unauthorised tax charges or prove any minimum income from April 2015.
Until then, drawdown and trivial commutation rules have been relaxed from the end of March so that individual funds of £10,000 and combined pots of £30,000 can be taken as cash, and anyone with as little as £12,000 in guaranteed income can go into unlimited flexible drawdown.
The guidance states providers and advisers should check that any recent purchases are still in the best interests of their customers, with providers advised to offer extended guarantee and cancellation periods, as a number have already done.
Even non-advised brokers and platforms have been informed they should contact customers directly to inform them of the changes and give them the opportunity to change their decision.
However, the FCA also states firms must ensure that clients understand the consequences of delaying buying an annuity purchase, stating that advisers should inform clients that the offered rate may drop if they wait until April 2015.
Rates for annuities have been in decline in recent years, but are expected to fall sharply as a result of the liberalisation plans, as fewer people will buy an annuity and there is less cross-subsidy.
The watchdog also states in two separate areas in the specific guidance that firms should highlight to clients any guaranteed annuity rate they may be entitled to and that not buying an annuity during the coming year may mean this is forfeited.
The guidance only applies during the “interim period” and is not relevant post-April 2015.
Advisers have previously warned that the FCA must alter what many perceive as an anti-drawdown stance in the wake of the Budget changes, to prevent its own general guidance being at odds with the Treasury’s aim of reversing annuities’ dominance of the retirement income market.