• Risk warnings and comparators can’t replace advice in this complex market
• FCA and FOS must offer certainty to ensure much needed supply of advice
• Alternatives to assigning for a cash lump sum need greater promotion
• Unresolved questions over joint life, impaired health and deferred annuities
As the FCA’s consultation on how to protect consumers in the secondary annuity market closes, Aegon says that while giving customers risk warnings and market comparators is to be welcomed, they are no replacement for professional advice.
It is calling for full clarity for advisers on the standards the FCA and FOS expects in this brand new and high risk market. Failure to provide this could mean advisers shun the market for fear of standards being applied ‘with the benefit of hindsight’. This creates a real risk that there will be an insufficient supply of advice to make the market a reality.
Aegon is also highlighting that many of those considering assigning their annuity should consider a transfer to flexi-access drawdown alongside a lump sum and this will need explained.
Steven Cameron, Pensions Director said: “While the secondary annuity market opens up new options for annuitants, selling an annuity means giving up a guaranteed income for life. That’s irreversible, with no second chance, and it’s hard to see how any number of provider risk warnings and comparison figures can replace the role of advisers in highlighting the many considerations.
“With such an important decision, it’s important that customers have access to professional advice and we await proposals on the value above which advice will be compulsory. Advisers will naturally have concerns over advising in a radically new market, which could attract a disproportionately high number of elderly of vulnerable customers. This makes it particularly important that the FCA and FOS set out their expectations very clearly to remove any risk of advisers being assessed ‘with the benefit of hindsight’.
“Providing risk warnings at an early stage may help customers decide if assignment might be worth considering. These need to reflect the different risks between assigning for a lump sum and ‘swapping’ an annuity for flexi-access drawdown. Arguably, the lump sum option is riskier as unlike flexi-access drawdown, there is no mechanism for planning a sustainable ongoing income and it could push the individual into a higher tax band.
“Some customers will also benefit from receiving a comparison of the amount they are being offered if selling, compared to what the cost would be of buying that annuity today, but many may struggle to interpret this without adviser help. While current annuity costs can be sourced from places such as the MAS Annuity Comparison Website, a reliable comparison will be difficult if the individual has a health condition that may affect their life expectancy. And with no generally available way of identifying competitive prices for deferred annuities, the FCA may need to think more fully about how to offer protections to consumers considering assigning deferred annuities.
“There are also unresolved issues where an annuity can continue on the annuitant’s death to a ‘second or subsequent’ beneficiary. While a current spouse may agree to an assignment, that might not be any comfort to ‘the second Mr or Mrs Jones’ who finds their departed spouse has assigned away rights they might otherwise have inherited.
“For the secondary annuity market to take off, the FCA needs to design robust protections for consumers while working with FOS to offer full clarity to advisers.”
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