The Financial Conduct Authority has outlined how it will reform Pension Wise in preparation for the launch of the secondary annuity market.
From April 2017 people will be allowed to exchange their annuities for a cash lump sum.
In a consultation paper released today (6 September) the FCA proposed updating Pension Wise standards to meet the needs of the secondary annuty market in four “key areas”.
Outlining content expectations, the FCA said guidance providers would be expected to give individuals guidance on next steps, including potentially seeking professional advice - which is expected to be mandatory for pots over a certain threshold.
This threshold, however, has yet to be set.
Responding to the FCA’s call for evidence, Hargreaves Lansdown’s head of pension research Tom McPhail said the advice threshold should be to be defined in terms of the annual income, rather than capital value.
He also argued that, for those not paying for advice, a Pension Wise consultation should be mandatory.
“The particular risks in this market are such that an independent sense-check from either a qualified adviser or from Pension Wise is a small inconvenience for the small number of investors who are likely to go ahead with such a transaction,” he said.
These area where Pension Wise will be updated include: introducing standards specifically for guidance about selling an annuity income; knowledge requirements for those providing the guidance; guidelines for the “minimum content” the guidance provider should cover in a guidance session; and guidelines for the type of information guidance providers should obtain from the individual during the session.
It went on to list details its guidance providers would be expected to be aware of.
These included knowledge of technical factors such as how the market operates and the tax implications of selling an annuity; as well as the individual’s personal circumstances, such as long-term care needs, sustainability of income in retirement, life expectancy and eligibility for means tested benefits.
On professional standards, the consultation paper stated: “Having competent individuals delivering Pension Wise guidance is critical to ensuring that good quality guidance is delivered and in creating consumer trust and confidence in the service.”
The FCA’s consultation period closes on 4 October.