FCA to ban commission for secondary annuity market

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The FCA says brokers working in the secondary annuity market will not be allowed to charge commission.

In a consultation setting out rules to govern the secondary annuity market, published today, the FCA says people selling on their annuities will be required to take “appropriate advice” above a threshold.

However the regulator has not defined what kind of advice will have to be taken or what the threshold will be.

The regulator has confirmed customers can sell on their annuity even if the advice is not to do so.

In addition firms, who will need to be authorised, will be required to show their quotes alongside the current cost of buying the same value annuity.

As expected providers will have to signpost customers to Pension Wise and advice at the first point of contact, even if the annuity is below the threshold.

The original annuity provider will be allowed to charge a fee when the annuity is sold on.

The FCA says: “We want to avoid conflicts of interest, which we believe could arise if brokers’ remuneration is set by a buyer.

“Therefore, we are proposing rules which would both prevent brokers’ from receiving commissions set by buyers and prevent buyers from offering commissions in this market.

“Broker firms will not be able to receive commissions offered by buyers, even if they intend to rebate these payments to the seller.”

The regulator also confirmed annuity sales will be covered by the FOS and the FSCS.

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.”

AJ Bell pensions technical director Mike Morrison says: “This looks like the beginning of the end for commission in the non-advised market. How can the FCA justify banning commission when people are selling an annuity through a broker, but allowing it when they buy one?”

The FCA consultation is open until 17 June.