A row is erupting over the level at which mandatory advice should be required for the resale of annuities, after the Treasury tabled an amendment on the issue today.
The government has today announced an amendment to the Bank of England and Financial Services Bill, which will ensure impartial financial advice for savers selling their “high value” pension annuity, requiring advice to be taken, although no limit on the value of annuities affected has been set. The secondary annuity market is expected to launch in April 2017. The Treasury and the FCA are currently working on the rules for how it could operate.
TUC General Secretary Frances O’Grady says: “Many savers have been badly let down by the failures of the annuity market.
“Mandatory, impartial financial advice will help those selling their annuities avoid being ripped off for a second time. It is good that the government has recognised this. It is important that the definition of ‘high value’ is not set too high. Even a relatively small annuity can provide a high proportion of someone’s retirement income.”
Old Mutual Wealth retirement planning expert Adrian Walker says: “An annuity acts the same as a final-salary pension in that it provides a guaranteed income for life, often with built in guarantees such as a commitment to match inflation. Individuals with a final-salary pension and those in defined contribution schemes with safeguarded benefits are required to take professional financial advice before sacrificing pensions worth more than £30,000. It is logical that a second-hand annuity market should operate the same way, with people compelled to seek an expert opinion before swapping in a valuable annuity for a lump sum or an alternative pension income product.
“The option to sell your annuity is not a bad one in principle. Some people will welcome the freedom and flexibility to trade in secure income for pot of money they can take flexibly in their retirement.
“However, before rushing into a decision, it is important that people remember that the market for second hand annuities is likely to be one in which buyers hold all the information and sellers are in a relatively weak position. Nonetheless, a good deal is in the eye of the beholder. For someone with debts or personal circumstances which mean an annuity no longer meets their needs, taking cash could be an attractive option.”
Hargreaves Lansdown head of retirement policy Tom McPhail says: “Given the current advice requirements for pension transfers and safeguarded rights, this announcement is consistent with existing policy. It is essential that any development of a secondary annuity market incorporates appropriate consumer protections. Without suitable measures it could be too easy for investors to end up selling on their guaranteed incomes for rock-bottom prices.
“The critical question now will be where the Treasury sets the threshold for mandatory advice. There is already some concern that the current £30,000 threshold is causing problems, with some investors unable to obtain the advisory services they need. Any increase to the threshold would have to be accompanied by other suitable protections to ensure investors could make an informed choice.”
The Government’s amendment:
“The government is today tabling an amendment for mandatory advice for those with higher value annuities through the Bank of England and Financial Services Bill.
“The amendment will:
- compel the FCA to make rules requiring certain authorised entities to check that holders of a relevant annuity have received appropriate financial advice before they may sell their annuity
- provide the Treasury with delegated powers to determine what a ‘relevant annuity’ is, including what the threshold should be, how it should be calculated and whether it should take into account an individual’s circumstances
- give the Treasury delegated powers to specify what is meant by appropriate financial advice”