FCA tells advisers to prove annuity advice

Regulator rejects argument that advisers do not need to prompt consumers to shop around

Advisers will have to show consumers evidence that the annuity they were recommended was the best one available under new rules from the FCA.

The regulator opened a consultation in November after raising concerns that consumers were not shopping around enough for annuities.

The FCA’s research shows the majority fail to switch existing providers when buying an annuity, even though 80 per cent could have taken advantage of a better deal.

The FCA proposed a new information prompt for annuity purchases, which would include the provider’s own quote, how to shop around, and what the difference would be between their quote and the higher annual income they may get elsewhere.

Some respondents argued the prompt would not be necessary if the annuity was being purchased through an adviser. However, the FCA has said advisers would still need to provide the prompt.

The regulator’s final rules state: “Where a consumer uses an intermediary firm that sources annuities from the whole market, including a broker or independent financial adviser, the consumer is likely to be quoted the best rate available on the market.

“However, where the intermediary firm does not have access to every rate available, it is possible the quote presented by the intermediary firm does not produce the best annual income available to the consumer.

“In that situation, the consumer would benefit from being made aware of this so they can shop around more widely if they choose to do so. If the quote presented by the intermediary firm is the highest available to the consumer, we consider that the consumer would also benefit from receiving confirmation of this.”

Prompting the providers

The FCA has decided against revealing which provider is offering the highest quote for now, but will keep this under review. The annuity prompt will not have to compare the policy to other products such as flexible drawdown.

The prompts must be given on a single sheet of A4 paper, and all prompts will direct savers to the Money Advice Service’s annuity comparison tool.

However, firms involved in telephone calls with consumers will only be required to point to deals in relation to whatever specific guaranteed quote the consumer is looking to purchase.

The FCA has added after feedback that “a clear and prominent warning about enhanced annuities” must be included, but is not proposing that annuity purchasers will be forced to take advice on pots over £30,000.

The FCA’s template for an annuity prompt

The FCA estimates a  bill of over £10m in upfront costs to the industry to retrieve quotes from the open market and update their product disclosures.

The consultation received 28 responses, including from large pension providers like Hargreaves Lansdown and Standard Life, but also from trade bodies Apfa and the Association of British Insurers.

Firms will have to adopt the new rules by 1 March 2018.

The People’s Pension director of policy and market engagement Darren Philp says: “The FCA has missed a trick here to make a real difference to the pension outcomes of millions of people.

“While the proposed solution will have some positive impact, it just doesn’t go far enough and many consumers will still potentially miss out on thousands of pounds of future income by sleepwalking into an annuity that does not provide them with the best deal.

“Simply giving consumers ever more information doesn’t always work. We’ve been here before when it comes to the selling of annuities. With an ageing population and an increasing cost of retirement, it is critical that consumers achieve the best possible outcomes if they are purchasing an annuity.”



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There are 6 comments at the moment, we would love to hear your opinion too.

  1. Julian Stevens 26th May 2017 at 2:01 pm

    If I read it correctly, the FCA is instructing all small IFA firms to say to their clients: Having researched comprehensively as much of the annuity market as is available to us, this is the best rate we’re able to obtain for you. However, another, bigger firm may have access to even better rates with which we, as a small firm, can’t compete, so you may be better off going elsewhere.

    15 years late and then this. Thanks very much FCA.

  2. Weird?
    However, where the intermediary firm does not have access to every rate available, it is possible the quote presented by the intermediary firm does not produce the best annual income available to the consumer.

    But on the annuity key features:

    ‘Based on your key information…other providers offering higher rates if you select our product…losing out on £00,00..

    Are the FCA saying you have to research annuity quotes you may not have access to?

  3. Neil Liversidge 26th May 2017 at 2:21 pm

    Since founding West Riding in 2004we have shopped open market option rates for almost every annuity client. The only exception has occurred where we have been able to see – as a result of our expertise and experience – that a guaranteed rate on offer from the company holding the fund would certainly beat any rate that an OMO trawl might turn up. In such cases, to avoid self-defeating advice (i.e. advice resulting in an unnecessary cost that diminishes the return without benefit to the client) we have advised clients accordingly and have completed the business with the fund-holding provider for a fair documentation fee. Doesn’t every firm do this already anyway?

  4. Duncan Carter 27th May 2017 at 5:33 am

    Right, so I know I’m an old giffer now with only about 30 years experience but the whole issue of Open market options has been going on for all of my career.

    An independent planner working in this market knows exactly how to source the best annuity rate based on their clients actual needs and circumstances.

    Successive and expensive governmental and regulatory actions don’t seem to have made a jot of difference.

  5. If, as is often reported, people spend longer planning an annual holiday than sorting out their pension, then tough. They deserve nothing more than what they get. The sooner the FCA realise they cannot do everything for everyone all of the time the better. On top of this, a £10 million up front cost for what? Martin Wheatley was rightly criticised by the TSC over the FCA’s statement regarding “people loosing out on income via bad annuities”. When probed by the TSC it was then and only then that he stated the average income that’s being lost out was around £60pa gross. All they are doing now is putting in place a framework that will hang advisers out to dry because their Suitability Letters will be found “wanting” when complaints come in. They cannot make the public change their attitudes so they make advisers the scape goats for future complainants. It is a truly pathetic situation and if this is the only type of “innovation” the FCA are capable of then we are all doomed

  6. Just done a back to back comparison on Exchange and MAS website. Unsurprisingly there was £101 pa difference between them. Fills me with confidence that does!

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