Will Pension Wise have problems with secondary annuities?

Pension Wise jenga

Advisers say guidance sessions on secondary annuities will have to highlight to consumers they may struggle to get advice on selling their annuity.

The FCA has been consulting on plans to extend access to Pension Wise to those thinking about selling their annuity when the secondary market is introduced in April. The consultation closed last week.

In the paper, the regulator outlines what knowledge it expects Pension Wise staff to have on the secondary annuity market and what a guidance session on secondary annuities should cover.

The Government has since announced plans to create a single organisation to deliver guidance.

In its consultation response, Apfa says consumers should be made aware in guidance sessions that some advisers will not have the appetite to get involved in the secondary annuities market.

The Money Advice Service’s adviser directory should be used to signpost consumers to those advisers who are happy to take on secondary annuity sales, it argues.

Master Adviser partner Roy McLoughlin agrees: “It is all very well saying you need to take advice but if the advisers aren’t there, then it needs to be highlighted.”

Combined Financial Strategies director Jonathan McColgan says advisers will be faced with the problem that clients will want to sell their annuity, even if it is not the right thing to do.

He says: “It is a bit like what is going on with occupational transfers at the moment. There are those for whom it is definitely worth considering, but the majority of people shouldn’t be considering it. As advisers you are in this hard place where people are calling up with an expectation they want something  not necessarily right for them. Are they willing to pay for you to tell them they can’t get what they want?”

The Personal Finance Society has called for compulsory guidance sessions for consumers considering selling their annuities.

Chief executive Keith Richards suggests Pension Wise guiders should also understand the Men-
tal Capacity Act and how to deal with “substituted decision-makers”, be able to recognise undue third-party influence on older clients, and be aware of interactions with the means-tested benefit system.

Richards adds: “For the new market to work effectively, it will need to combine a robust package of consumer protection measures with specific and transparent protection for advisers, who could be faced with another wave of insistent client issues.”

Aegon also wants the regulator to be clear about what the expectations of the Financial Ombudsman Service will be on secondary annuities.

Pensions director Steven Cameron says advisers need confidence that they will not be judged retrospectively by the FOS.

He adds: “Whenever there is a brand new market there aren’t any precedents. The more clarity the FCA can provide on what they think all the risks and issues associated with selling an annuity on the secondary market are, the more advisers can take that as a good indication, as if they take that on board it is unlikely the FCA can find them wanting in terms of the quality of the advice they have given.”

There are two further secondary annuities consultations expected: one on the advice requirement for people wanting to sell annuities and one on the regulatory permissions for firms wanting to buy them.

Expert view: Standard Life pensions strategy head Jamie Jenkins

The secondary annuity market undoubtedly presents a number of challenges. The very nature of giving up income guarantees requires a balance to be struck between the need to help protect people from making poor decisions and providing them with the freedom to manage their own financial affairs.

It seems sensible that Pension Wise is extended as a support mechanism for people in making these decisions, and there are good arguments for this to be mandated within the process. With this in place, we could ensure that everyone is given the appropriate guidance and risk warnings in a consistent way.

The proposed changes to the Pension Wise service are welcome. While it is delivered free to the consumer, the service carries a cost for the industry and it’s imperative that it is delivered both effectively and efficiently for the benefit of all.

Consideration then needs to be given to those with larger annuities and whether or not there would be a threshold beyond which regulated advice would become mandatory, just as there is for defined benefit transfers. This would be especially important in the absence of an established, competitive market of secondary annuity buyers, which appears to be one of the immediate challenges.