The Financial Conduct Authority has proposed telling providers to produce an annuity quote for clients who refuse to provide health information.
As part of its Quarterly Consultation, published this morning (September 9), the FCA has proposed a change in rules which mean annuity providers do not have to produce a quote for consumers that refuse to answer questions about their health and lifestyle.
The regulator now wants providers to offer these consumers a market-leading quote so that it can be compared on a non-enhanced basis.
A standard annuity is a product that pays a regular retirement income – usually for life – using money from an individual’s pension pot but an enhanced annuity pays a higher level of income than a standard annuity due to an individual’s health and lifestyle conditions.
In the document the FCA stated: “We take this view because these consumers may still be able to get a better income from their annuity - or a better-priced annuity - if they shopped around. So, there is clearly still value in giving the consumer a market-leading quote.”
The FCA expects firms to comply with this rule change by January 1 2020 but has encouraged providers to comply by November 2019, as some providers are already preparing to offer market-leading quotes in these circumstances.
It estimates that the cost to the annuity industry will be £255,000 as IT systems will need to be updated and staff will need to be trained.
The regulator has also proposed amending the definition of “market-leading pension annuity quote” to reflect the fact this quote may not always be produced on a like-for-like basis with the company's own guaranteed quote.
This is the case when a firm obtains health and lifestyle information from a consumer but does not underwrite annuities on an enhanced basis, so does not use this information in sourcing their own guaranteed quote.
As part of the consultation, the FCA also wants to make amendments to its wake-up pack rules which are due to come into force from November.
Wake-up packs will be issued to savers on their fiftieth birthday and will have to include a generic warning on the risks around accessing a pension pot.
The FCA wants to make it clear that a pension provider is not required to give a consumer a wake-up pack when they have requested payment of their pension as a serious ill-health lump sum.
Giving a consumer a wake-up pack in these circumstances could be insensitive and the information is likely to be irrelevant to the client, according to the FCA.
The rules will also be amended to highlight that providers will be required to send wake-up packs at various age triggers from November 2019. This means that the information document will be sent to consumers ahead of their 60, 65, 70 birthday and so on.
The FCA said: “For example, we intend that it should be a requirement that a consumer who will reach the age of 65 in 2020 should be sent a ‘wake-up’ pack four to ten weeks before their birthday.