From April 2016, the government will remove the restrictions on buying and selling existing annuities to allow pensioners to sell the income they receive from their annuity without unwinding the original annuity contract.
In a HM Treasury document outlining the proposals, the government outline plans to "work with the Financial Conduct Authority to ensure appropriate consumer protection is in place for annuity holders as they consider their options.
They added that "this may include the provision of guidance to annuity holders or the requirement to seek advice so they are in a position to consider fully the impact of their decision and ensure they are receiving a competitive price."
Additional measures could include an offer of guidance, and regulatory interventions such as risk warnings, and the government said that this could be a potential new market for advisers.
Going into further detail, the document said:
"There is a strong case for requiring annuity holders to take financial advice from an Independent Financial Advisor, with a requirement for annuity providers to check this before they enable the annuity to be assigned. This mirrors the requirements now in place for when people convert from a defined benefit to a defined contribution based pension during their accumulation phase, where the value of the pension is above £30,000.
"Regulated advice would ensure that individuals receive help tailored to their circumstances and a recommendation on whether assigning their annuity to a third party would be in their best interests. People would still be at liberty to choose not to accept a recommendation."
However it appreciated that "regulated advice can be expensive, as individuals could have to pay several hundred pounds or more, which might be a significant proportion of the value of their annuity."
An alternative could be free and impartial tailored guidance. The government is considering whether to introduce legislation to extend the remit of Pension Wise, the new guidance service to help people understand the pension freedoms being introduced on 6 April and choose the option that fits their circumstances and goals. Whilst extending the scope of Pension Wise is one option, guidance could also be offered, either through the annuity provider or independent and impartial third parties.
