People selling their annuities may be forced to take regulated advice before swapping contracts for cash or moving into drawdown under plans unveiled by Chancellor George Osborne.
A consultation published today on how a secondary annuities market could work says “there is a strong case for requiring annuity holders to take financial advice from an independent financial adviser”.
It suggests mirroring the £30,000 mandatory advice threshold for defined benefit pension transfers.
But it warns cost could put people off seeking advice. The Government says the FCA’s “clarification of rules around simplified advice” will create a potential new market for advisers.
The Government is considering extending guidance service Pension Wise and providers’ new second line of defence requirements to include warnings about the risks of selling an annuity.
Wingate Financial Planning director Alistair Cunningham says: “Given that advising on converting DB to a DC scheme is both complex, high risk and therefore expensive, I cannot fundamentally see how an adviser could ever recommend an individual giving up their guaranteed annuity in exchange for a cash sum and it not being to the detriment of the annuitant.”
MGM Advantage pensions technical director Andrew Tully says: “While taking advice is crucial it is a further cost in the process and so further reduces the value that a customer will receive.”
Under the proposals, individuals would be required to obtain a minimum number of quotes before transacting.
Just Retirement director Stephen Lowe says: “This should be a mandatory open market where people receive the best value deal, perhaps in a way similar to the Chilean market where blind bids are presented to ensure an efficient market.”