Advisers’ processes must change when new rules come into force from March
March will see the introduction of the FCA’s annuity comparison requirements, following its policy statement PS17/12 last year.
Few people will argue with the aim of helping people get the best deal at retirement. However, there are a number of significant flaws around the design and implementation, so it is important advisers take time to work out their processes as a result of these changes.
From 1 March, any guaranteed annuity illustration will include one of three new prescribed templates. This addition will either show the annuity income quoted is the best in the market, that the client could get a higher annual income elsewhere or that they have not consented to the use of their data for a comparison to be made.
This issue around consent is one area where an adviser will need to firm up their process. To enable a comparison to be done, an adviser must obtain confirmation from the client they are happy with their personal data being used to provide a comparison. Portals and providers will ask for this before a quote is done to ensure they are using the correct template.
Many advisers will use a portal as a first step to compare annuity income available. If viewed on screen there is no change to the process. But advisers will notice a difference if details are printed as, at that stage, one of the three templates will be included.
It is also worth being aware there may be inconsistencies across the industry. Different providers may use different portals to source the best rate and subtle differences between portals could mean what was seen as the best rate on one portal may not be on another.
Problems may also arise once a decision has been made to purchase an annuity. There is likely to be a delay of a few weeks before the funds are received by the chosen annuity provider. As the amount received will inevitably be different to what was originally quoted, the provider will prepare a final illustration showing the actual income the customer will get.
This illustration also needs to include a comparator and, as the annuity market is constantly changing, it may show this provider no longer offers the best rate.
It is crucial advisory firms document what happens in this situation. They could invoke cancellation rights, re-broke the case and pass it to the new best provider. But by the time that happens the same issue could arise again, and adviser and client could be caught in a never-ending loop.
Clients may also be unhappy with further delays as they will need the income. An alternative would be to have some form of deminimis limit, going ahead with the original quote if the difference is minimal, and re-broking if it is a larger amount.
An annuity comparator sounds like a simple concept to help people get the best deal. And at heart it should be. But the practicalities are, perhaps inevitably, much more complex. It is important advisers have a suitable process and keep clients informed.
Andrew Tully is pensions technical director at Retirement Advantage