View more on these topics

Andrew Tully: Are advisers ready to prove annuity advice?

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.

FCA tells advisers to prove annuity advice

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.

Have pension freedoms limited choice?

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



Nearly £50bn now saved into DC schemes

Savings into defined contribution pension schemes increased by more than one fifth last year to £5.4bn, according to figures from The Pensions Regulator. According to TPR’s DC Trust report, £48bn is now saved in DC pension schemes. Member numbers increased by 29 per cent to 12.6 million people. Master trusts account for 10 million DC […]


FCA allows clarifications to counter ‘overly optimistic’ investment projections

Advisers concerned performance scenarios in a Priips key information document might mislead their clients can give more information to the investor, the FCA says. The regulator today published a statement on the KIDs, brought in on 1 Janaury through new Priips regulation. Analysts and investment firms have warned over the misleading KIDs, with Baillie Gifford […]


AJ Bell survives complaint from former adviser over Sipp failures

A former adviser claiming that AJ Bell made a string of errors over his Sipp has lost his complaint at The Pensions Ombudsman. The nature of the allegations against the Sipp provider, which have been made over a number of years, led AJ Bell to take the “unprecedented decision” to ask the client to transfer […]


FCA reports increase in advice firm numbers

The number of financial advice firms in the UK has continued to creep upwards, latest FCA data shows. Figures drawn from regulatory returns show 5,270 financial advice firms had at least one staff member advising on retail investments, with a total of 25,951 advisers recorded as at the end of November 2017. As of December […]


News and expert analysis straight to your inbox

Sign up


    Leave a comment