PensionsJun 21 2016

Providers call for mandatory guidance on secondary annuities

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Providers call for mandatory guidance on secondary annuities

Providers have called for mandatory guidance on the secondary annuity market for consumers coming via Pension Wise.

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.

Also in December, it was announced that the government guidance service’s remit was to be expanded to cover this secondary annuity market.

Now, both Hargreaves Lansdown and Just Retirement have called for the guidance provided by Pension Wise to be mandatory, in order to ensure consumers are properly protected.

Speaking at The Future of Life and Pensions conference last week, Hargreaves Lansdown’s head of retirement policy Tom McPhail said there is a legitimate case for those not paying for regulated advice to at least get guidance before going ahead with a transaction.

He said if Pension Wise is made mandatory, it will help from the industry’s costing point of view to kick out some of the people who are “curious tyre kickers”, looking for investigation purposes but are not likely to proceed.

“I think there is a valuable role for Pension Wise to perform, not just for consumers, but for industry in filtering out some of those non-proceeding customers.”

Stephen Lowe, group communications director at Just Retirement, said that there are two groups of sellers in the market: those driven by econometric brains and others driven by purely emotional brains.

“It will be in the mind of consumer to say ‘I just want that sum of money’ and that’s why the consumer protection is absolutely essential.

“That’s why the default, the mandatory step to Pension Wise we believe is crucial, because it has the opportunity to impartially deploy the risk warnings, the recommendation for advice and to do a lot of the jobs that, quite frankly, some of the parts of the industry have lost their trust in being able to do for consumers.”

Mr McPhail added that the secondary annuity market is definitely not as straightforward as the primary annuity market.

“I think this is considerably more complicated and we have been actively exploring a number of ways to develop the proposition for our clients for our customers going into next April,” he revealed.

“We are still doing that and we still haven’t pinned that down - I think that’s a reflection of some of the challenges of this market place, our concerns around the consumer risks some of the costs involved.”

Paul Lindfield, director of wealth management of Manchester-based Sedulo Wealth Management said guidance should be made mandatory for the secondary annuity market, because people underestimate their longevity.

He told FTAdviser that for many people underestimating their longevity, what might seem like a nice lump sum will not be good value for money.

“People could make some costly mistakes that cannot be reversed.

“It[the secondary annuity market] will lead to a lot of mis-selling and a lot of poor consumer outcomes if guidance and advice is not made mandatory.

“I also think advisers should have the right to choose whether they operate in this market or not.”

ruth.gillbe@ft.com