Pension Wise to be extended

Pension Wise to be extended

Economic Secretary to the Treasury Harriett Baldwin has given further details on how the government plans to set up a secondary annuity market from 6 April 2017.

In response to the recent consultation on how a secondary annuity market would work, the government confirmed this morning (15 December) that tax restrictions for people looking to sell their annuity will be removed.

This will give five million people with an existing annuity, and anyone who purchases an annuity in the future, the freedom to sell their right to future income streams for an upfront cash sum.

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Further details include the fact that the Pension Wise guidance service will be extended to cover the secondary annuity market and that all UK-based annuity purchasers and intermediaries must be regulated by the Financial Conduct Authority.

The extension of Pension Wise comes despite previous pensions minister Steve Webb, who launched the guidance service, recently admitting to FTAdviser the money devoted to Pension Wise could have been better spent on an adviser voucher system.

HM Treasury also stated it will introduce a comprehensive consumer protection package for the secondary annuity market, including the requirement for individuals to seek independent financial advice for annuities worth above a certain threshold.

It will also ask the FCA to put in place a framework which could include consulting on a range of extra consumer protections, such as risk warnings and ways for consumers to understand the fair value of their annuities.

The government has also responded to consultation feedback and will work with the industry and the FCA to create a simple online tool to help consumers work out an estimated value of their annuity.

Ms Baldwin said: “People who have worked hard and saved all their lives should be trusted to make the right decision for them and with the help of the regulator we will ensure these people have the right information to do that.”

Minister for pensions Baroness Altmann added that for the vast majority of customers, selling an annuity will not be the best decision.

She said: “However, individuals may want to sell an annuity for instance to provide a lump sum for relatives or dependants; in response to a change in circumstances; or to purchase a more flexible pension income product instead.”

In terms of the requirement to seek financial advice, through changes to the Bank of England and Financial Services Bill 2016, the government noted that what constitutes a relevant annuity and the threshold – including how it will be calculated and whether it should be set in relation to an individual’s financial circumstances – will be set subsequently by secondary legislation.