FCA outlines secondary annuity market rules for brokers

The FCA has proposed that brokers must set out their charges upfront and agree them with the consumer selling their annuity, rather than being paid by commission from firms acting as buyers.

In order to help consumers judge the value of their annuity income, the FCA has proposed that buyers and brokers making an offer for a seller’s annuity income will be required to present their offer alongside the ‘replacement cost’ of the annuity income, if it were to be bought new on the open market.

Under the FCA’s proposed rules firms will be required, at the earliest opportunity, to give those considering the sale of their annuity specific risk warnings and to recommend that they seek regulated financial advice or guidance from Pension Wise. Firms will also be required to recommend that sellers shop around.

Among the other proposals in the consultation paper, the FCA has proposed that annuity providers will only be able to recover "reasonable costs" when charging to facilitate annuity income sale and that the sale of the annuity will fall within the scope of both the Financial Ombudsman Service and the Financial Services Compensation Scheme.

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 today that will help ensure that consumers have an appropriate degree of protection should they decide to sell their annuity income.”

Yvonne Braun, Director of Policy, Long Term Savings and Protection at the ABI, commented:

“The FCA is right that the secondary annuity market comes with potential risks to customers. We also agree that consumers in this market are more likely than in other markets to be vulnerable, so this consultation is essential.

“There are still outstanding issues to work through in a limited timeframe including what ‘appropriate advice’ will look like, what is expected of providers, and how we can work with Government to ensure that the maximum number of people under the advice threshold take up guidance. We will be working closely with the FCA as we develop our response to the consultation, to help address the risks and enable those who could benefit to do so.”