The Financial Conduct Authority (FCA) has outlined plans for Pension Wise to carry out more detailed fact-finds for people wishing to sell their annuities.
The regulator said it wants pension guidance providers to ask for people’s financial and personal circumstances before helping them come to a decision on whether or not they want to sell their guarantee retirement income.
The proposals came in the wake of the government’s decision to allow consumers to sell their annuities from April 2017, as long as their annuity provider agrees.
The FCA is responsible for setting and monitoring Pension Wise delivery standards, having set initial rules in March 2015.
In a consultation published on 6 September it proposed future guidance sessions should include information about the annuity, such as the amount and frequency of the income, the structure of the annuity and relevant special features of conditions that apply, as well as information about any contingent beneficiary’s right, and about the consumer’s financial and personal circumstances.
This will include current and future sources of income, tax status, state of health, entitlement to state benefits, dependants, and potential long-term care needs, the FCA said.
The regulator has previously said it was minded to allow pension guidance to become a more personalised service.
Pension Wise is not allowed to give advice – a key difference being whether or not a personal recommendation has been given. Instead, its employees provide information to help people make their own informed decisions.
Under the proposed FCA standards, guidance providers will be expected to analyse the market and options those selling an annuity have as well as being able to assess the value of the price offered for their annuity.
They will need to understand the tax implications of selling an annuity income and the details of when advice is required.
The FCA also wants guidance providers to be able to help retirees understand the issues around selling their annuity income, including their long- term care needs, sustainability of income in retirement, life expectancy and eligibility for means-tested benefits.
The regulator said: “Having competent individuals delivering Pension Wise guidance is critical to ensuring that good quality guidance is delivered and in creating consumer trust and confidence in the service. Given this, we propose to amend our requirements on professional standards.
“The proposals aim to secure an appropriate degree of consumer protection for individuals and contingent beneficiaries who seek guidance from Pension Wise about whether to sell, or the impact of selling, the income from an annuity.”
Stop the clock
Under new government rules consumers will also be able to spread their free Pension Wise consultation across multiple sessions.
The government thinks flexible appointments will help Pension Wise offer more personalised support to consumers by better reflecting where each individual is in their decision-making process.
Pension Wise has said it believes the best way to deliver flexible sessions is on a ‘stop the clock’ model for appointments.
This means where the guidance provider identifies that a consumer may benefit from getting further details or from having additional guidance from third parties, the guide will be able to stop the appointment and book another later.
This will create a more personalised and holistic service, the FCA said. “We envisaged this type of flexibility when we originally drafted the standards and it is permitted within the existing framework,” it said.
The regulator plans to monitor compliance with its rules mainly by asking providers for evidence they are complying. This will include written documented processes, quality controls and the data they use to monitor their compliance with quality controls.
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