FCA outlines rules for pensions secondary annuity market
The Financial Conduct Authority (FCA) has published a consultation paper with proposed rules and guidance for the pensions secondary annuity market, in an attempt to protect ‘vulnerable’ pensioners.
Currently, it is possible to sell an annuity, but doing so incurs a tax charge of between 55% and 70%. From April 2017, individuals who receive a lump sum from selling their annuity will only pay tax at their highest marginal income tax rate. The Government currently estimates that 300,000 people will cash in their products.
This will create a secondary market for people to sell their annuity, and the FCA has been tasked with proposing regulations to ‘balance the need to support this new market with protecting consumers’.
Christopher Woolard, director of strategy and competition at the FCA, said: ‘Opening up this market extends the Government’s pensions reforms to those who have already bought annuities, however, there are potential risks involved for consumers and we recognise that some consumers may be particularly vulnerable. We have set out proposed rules and guidance . . . that will help ensure that consumers have an appropriate degree of protection should they decide to sell their annuity income.’
The proposals include:
- requiring sellers to seek financial advice for annuities over a certain value, and giving them specific warnings of the risks early in the selling process
- extending the Government-backed, free Pensions Advisory Service
- requiring brokers to gain consent from anyone else who would benefit from the annuity, such as a spouse, before it is sold
- requiring brokers and advisers to set out their charges upfront
- introducing a 14-day cancellation period and providing access to the Financial Ombudsman if sellers are unhappy.
The consultation will be open until 21 June 2016.