The Department for Work and Pensions and the Financial Conduct Authority have confirmed to FTAdviser they will not force advisers to help clients sell their annuities in the secondary market.
Reforms unveiled in December will allow people drawing annuities to sell their contracts from 6 April 2017, extending at-retirement reforms announced in the Budget two years ago.
Advice will be compulsory for those with larger pots, but last month FTAdviser reported advisers were shunning talks to develop an annuity re-sale market over fears of future mis-selling claims, in what could be a fatal blow to the government’s plans.
Pensions minister Baroness Ros Altmann said advisers will keep the right to refuse clients seeking to sell their guaranteed retirement income. “I’m not saying this is straightforward, but if some advisers don’t want to advise on this they don’t have to - nobody is forcing them,” she told FTadviser.
“Lots of advisers will not advise on defined benefit to defined contribution transfers for insistent clients, or on guaranteed annuity rates for insistent clients, that’s happening already; but there are advisers out there who will.”
The government will aim to unite those wanting to sell annuities with advisers who can help, she said, adding a recently launched consultation will give more detail on the kind of advice required.
Similarly, the regulator is taking a hands-off approach with respect to advice on the secondary annuity market, despite stating it poses “significant risk of poor outcomes for consumers”.
Maggie Craig, the FCA’s head of pensions policy, said it is “not talking about additional requirements in terms of specialist adviser qualifications”, rather confirming “it will be up to advisers whether they want to get involved in this market or not.”
In April, the FCA revealed providers will be responsible for checking retirees have received the government-mandated advice before they sell their guaranteed income.
But Bruce Moss, founder of fund risk-rating firm eValue, warned of future problems as people make bad decisions without the right advice.
“People talk a lot about annuities being really poor value, but that is predicated on the assumption investment returns are going to be good on drawdown in the future.
“To be honest, people will find they get pretty poor value for selling an annuity and there needs to be a very active market with lots of choice in terms of where you can sell your annuities, but if it is quite a small market then people will not get good value.”
For advisers it was a high risk market in relatively expensive advice, he said, pointing out the need to review the sellers’ other assets, health and likely longevity.
David Henderson, independent financial adviser at Edinburgh-based Personal Money Management, pointed out: “Providers haven’t agreed on how a secondary market would work so everybody is working in the dark at the moment.
“DB to DC works but advisers need to be given clarity of due process. After the market is actually created the FCA needs to put down what best practice will look like, because it is extremely unlikely someone would reverse an annuity purchase.