FCA urged to make secondary annuity guidance compulsory

"It is critical that individual guidance providers have the knowledge and skills required to be able to communicate the complexities and risks associated with entering this newly formed market."

The requirement would apply to all consumers who are considering the sale of an annuity, and who are not otherwise seeking full regulated financial advice.

Personal Finance Society chief executive Keith Richards said that while giving up guaranteed income in exchange for a lump sum may be appropriate in some circumstances, consumers needed to be made fully aware of the associated financial risks.

Richards said: “If a consumer is attempting to deal with what they view as a poor value annuity by opting for a poor value cash lump sum, it is likely to compound the issue and lead to financial detriment in the future.

“For the new market to work effectively, it will need to combine a robust package of consumer protection measures with specific and transparent protection for advisers, who could be faced with another wave of insistent client issues.

“It makes good sense for the Pension Wise guidance service to act as an initial contact point for consumers who may later seek, or indeed be signposted to full financial advice regarding the sale of their annuity.

“But it is critical that individual guidance providers have the knowledge and skills required to be able to communicate the complexities and risks associated with entering this newly formed market.

“This is particularly important given that prior to pension freedoms the government was concerned that retirees were seriously underestimating life longevity and increasingly risked poverty in later life.”