Annuity Direct is calling for an FSA investigation into the sale of annuities, claiming that the majority of providers that sell direct to consumers are breaching switching rules.
Chief executive Bob Bullivant says most providers fail to conduct proper research into clients’ existing pension schemes and their entitlements when selling an annuity.
He says providers and advisers should take into account guaranteed annuity rates, market value adjusters, terminal bonus dates, tax-free cash allowances and any life cover attached to their pension scheme. Bullivant says: “I do not know of a provider that is selling direct that is doing it properly and actually doing a proper investigation of the ceding scheme. I would go as far as to say that the majority are in breach of the switching rules.
“I think the FSA should be doing something about this. They are hitting switching before retirement and they have fined people for not carrying out proper investig-ation of schemes but what is the most important switch a client does? It is at retirement and, to my knowledge, they have not gone anywhere near any organisation and asked them how they investigate a ceding scheme at retirement.”
Aviva at-retirement director Clive Bolton disagrees. He says: “At Aviva, we take great care to ensure we offer the right retirement solution for each customer. We do this by offering solutions that consider individuals’ personal circumstances and requirements.”
An FSA spokesman says he could not comment on whether the regulator is investigating switching practices at retirement but he adds: “The FSA is quite clear about what it expects of firms offering or advising on annuities.”
Bullivant says the argument that consumers with small pension pots are not profitable for IFAs and must therefore go direct to providers is a smokescreen created by the Association of British Insurers.
He says: “I can make money on funds down to £10,000. I think this small-pot argument is a smokescreen put up by the ABI to try to hang on to funds.
“Making small pension pots work for IFAs depends on how well you organise your business and how good your systems are. We make money on small pots and very often the client who turns up with a fund of £15,000 then asks you to deal with his second fund which is £250,000. Or they introduce you to their brother, who has £100,000. I do not buy this small pot argument at all.”
The ABI denies this, saying it is developing a simplified advice process to enable people who cannot afford full advice to get some guidance.
A spokeswoman says: “We recognise that a large number of consumers are unable to afford, or do not require, the level of service offered by a full financial advice proposition. To enable these consumers to access financial advice, we have developed proposals for a simplified advice process.
“This process will undertake a limited assessment of a consumers needs to deliver a suitable recommendation, enabling consumers to purchase the annuity appropriate for their needs.”
The Retirement Partnership director David Dunn says IFA firms should make individual judgements about the profitability of advising clients with small pension pots and adds that IFAs who are prepared to take on such clients should be promoted to the public.
He says: “The Pension Income Choice Association has lobbied for a register of IFAs that will give advice to people with small pension pots, which I strongly support. It is important to promote IFAs that will offer this type of advice so that they are more accessible to consumers.”