Annuity providers will be required to recommend those seeking to surrender their products seek professional financial advice, even if such advice is not legally required, and tell vendors to shop around for the best deal, FCA draft rules published today have confirmed.
Providers will also be required to tell prospective vendors that consent of any ‘contingent beneficiary’ such as a spouse, will be required before a sale can proceed, and will need to demonstrate they made reasonable efforts to secure that consent before selling.
The rules say providers will only be allowed to recover ‘reasonable costs’ of dealing with the surrender and advisers will not be allowed to take commission.
The Government is legislating to require sellers to take ‘appropriate advice’ where the value of their annuity income is above a certain threshold, and to place a duty on the FCA to make rules determining which firms should check that this has been done prior to sale. The Government will set the compulsory advice threshold, and the definition of ‘appropriate advice’, in secondary legislation.
The FCA has proposed that brokers must set out their charges up front and agree them with the consumer selling their annuity, rather than being paid by commission from firms acting as buyers.
In order to help consumers judge the value of their annuity income, the FCA has proposed that buyers and brokers making an offer for a seller’s annuity income will be required to present their offer alongside the ‘replacement cost’ of the annuity income, if it were to be bought new on the open market.
Yesterday the Treasury issued a consultation that widened the scope of its plans to let pensioners cash in their annuities to some members of defined benefit schemes.
An HMRC consultation published yesterday confirmed that final salary schemes that have purchased annuities as an asset will be able to assign them to individual members who in turn can sell them on.
In March 2015 the Government announced that it would extend the pension freedoms to those who had already bought an annuity with the proceeds of their defined contribution pension savings. The government proposes to do this by changing the tax consequences that currently apply to a person wishing to sell their annuity income, with effect from April 2017.
FCA director of strategy and competition Christopher Woolard says: “Opening up this market extends the government’s pensions reforms to those who have already bought annuities, however, there are potential risks involved for consumers and we recognise that some consumers may be particularly vulnerable.
“We have set out proposed rules and guidance today that will help ensure that consumers have an appropriate degree of protection should they decide to sell their annuity income.”