“This response represents both a continuation of the Pension Freedoms and the beginning of the journey towards developing a secondary market for annuities. Although there are many areas which remain unclear, there is much in today’s announcement that is likely to be welcomed by the industry.
“There will be a lot of activity from the FCA alongside the government including creating rules to protect vulnerable customers and developing an online tool to help customers gain an idea of the value of their annuity on the secondary market.
“Guidance will also required to extend the existing risk warning regime, set out rules for the reasonable costs annuity providers can recover and to develop an authorisation process for those firms who decide they want to buy back annuities.
“It is reassuring to see throughout this response an acknowledgement of the potential risks to customers when selling existing annuities. Addressing the ongoing debate around the need for further financial advice and guidance, the consultation’s stated intention to consider all aspects of a customer’s circumstances when setting the level at which advice is needed will be important.
“Although accompanied by additional costs and burdens, in the long run it will be vital that the industry uses these reforms to help their customers understand the implications of selling their annuities. It provides the industry with an opportunity to reform their relationship with their long-standing customers.”
The consultation covered:
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Consumer protection measures including intentions to require advice where annuities are over a certain size, the extension of FCA risk warning requirements and the expansion of Pension Wise guidance.
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Allowing annuity providers to buy back their annuities where it is sold through an intermediary, creating a new regulated activity which needs to be authorised.
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HM Treasury’s intention to work with FCA to develop an online tool to allow annuity holders to enter their details and receive an estimated range around what they might expect to receive for their annuity income in the secondary market.
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Not allowing retail customers to invest in second hand annuities but accepting securitisation in the market, as well as exploring whether at least one party in every transaction in the secondary market for annuities to be authorised by the FCA.
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