With effect from March 2018 Financial Advisers must prompt clients to shop around for the best annuity rate. However, when dealing with an Independent Financial Adviser who is not tied or restricted one would expect the IFA to be providing the best rate possible. So, our advice is ensure you deal with an Independent Financial Adviser who works from the the whole market rather than one who is restricted.
FCA tells advisers to prove annuity advice
Regulator rejects argument that advisers do not need to prompt consumers to shop around
Advisers will have to show consumers evidence that the annuity they were recommended was the best one available under new rules from the FCA.
The regulator opened a consultation in November after raising concerns that consumers were not shopping around enough for annuities.
The FCA’s research shows the majority fail to switch existing providers when buying an annuity, even though 80 per cent could have taken advantage of a better deal.
The FCA proposed a new information prompt for annuity purchases, which would include the provider’s own quote, how to shop around, and what the difference would be between their quote and the higher annual income they may get elsewhere.
Some respondents argued the prompt would not be necessary if the annuity was being purchased through an adviser. However, the FCA has said advisers would still need to provide the prompt.
The regulator’s final rules state: “Where a consumer uses an intermediary firm that sources annuities from the whole market, including a broker or independent financial adviser, the consumer is likely to be quoted the best rate available on the market.
“However, where the intermediary firm does not have access to every rate available, it is possible the quote presented by the intermediary firm does not produce the best annual income available to the consumer.
“In that situation, the consumer would benefit from being made aware of this so they can shop around more widely if they choose to do so. If the quote presented by the intermediary firm is the highest available to the consumer, we consider that the consumer would also benefit from receiving confirmation of this.”
Prompting the providers
The FCA has decided against revealing which provider is offering the highest quote for now, but will keep this under review. The annuity prompt will not have to compare the policy to other products such as flexible drawdown.
The prompts must be given on a single sheet of A4 paper, and all prompts will direct savers to the Money Advice Service’s annuity comparison tool.
However, firms involved in telephone calls with consumers will only be required to point to deals in relation to whatever specific guaranteed quote the consumer is looking to purchase.
The FCA has added after feedback that “a clear and prominent warning about enhanced annuities” must be included, but is not proposing that annuity purchasers will be forced to take advice on pots over £30,000.
The FCA estimates a bill of over £10m in upfront costs to the industry to retrieve quotes from the open market and update their product disclosures.
The consultation received 28 responses, including from large pension providers like Hargreaves Lansdown and Standard Life, but also from trade bodies Apfa and the Association of British Insurers.
Firms will have to adopt the new rules by 1 March 2018.
The People’s Pension director of policy and market engagement Darren Philp says: “The FCA has missed a trick here to make a real difference to the pension outcomes of millions of people.
“While the proposed solution will have some positive impact, it just doesn’t go far enough and many consumers will still potentially miss out on thousands of pounds of future income by sleepwalking into an annuity that does not provide them with the best deal.
“Simply giving consumers ever more information doesn’t always work. We’ve been here before when it comes to the selling of annuities. With an ageing population and an increasing cost of retirement, it is critical that consumers achieve the best possible outcomes if they are purchasing an annuity.”
By Justin Cash 26th May 2017 11:52 am
The FCA annuity prompt template