The government today (9 December) tabled an amendment for mandatory advice for those with higher value annuities through the Bank of England and Financial Services Bill.
The amendment will compel the FCA to make rules requiring certain authorised entities to check that holders of a relevant annuity have received appropriate financial advice before they may sell their annuity.
The legislation will provide HM Treasury with delegated powers to determine what a ‘relevant annuity’ is, including what the threshold should be, how it should be calculated, and whether it should take into account an individual’s circumstances
The Treasury will also be delegated powers to specify what is meant by appropriate financial advice.
A spokesman for HM Treasury pointed out that this legislative approach was consistent with the approach used for the advice requirement for individuals considering whether to transfer from defined benefit to defined contribution pensions, as set out in the Pension Schemes Act 2015.
Steven Cameron, regulatory strategy director of Aegon, said making advice mandatory for those with higher value annuities who wish to sell these on the secondary market - due to be in place from April 2017 - was a vital part of protecting consumers.
He said: “Giving people the option to sell on their annuity for cash or to transfer it into a more flexible drawdown product is a logical extension of this year’s pension freedoms. Some people who purchased annuities in the past may feel they’ve missed out.
“But selling your annuity, which is a guaranteed income for your, and in some cases your spouse’s life, is a major decision and won’t be right for many. We believe everyone would benefit here from seeking professional advice to understand the consequences.
“It is already a requirement to seek advice if your pension has a guaranteed element and is worth £30,000 or more. We believe the risks in selling your annuity are at least as great and the starting level might even need to be set lower.
“While we note the government also intends to extend the remit of Pension Wise, we suspect guidance won’t go far enough for most given the highly personalised considerations around selling your annuity.”
The advice requirement was added after the government used the Summer Budget to delay plans for the secondary annuity market, meaning it will now not come into effect until 2017.
In his March Budget, chancellor George Osborne launched a consultation into the proposals - which would have allowed people to sell their annuity for a lump sum from April 2016.
The delay followed a range of concerns raised by industry insiders, expressing fears that the market would not be practical.
In its response to the consultation, the NAPF said selling their guaranteed income could prove expensive for annuitants because of the costs of individually underwriting each transaction.