UK Regulator Consults on Regulation of Secondary Annuity Market 

The Financial Conduct Authority published a consultation paper on its proposed rules and guidance for the secondary annuity market due to start in April 2017. The consultation is aimed at parties interested in pensions and retirement issues, including providers and distributors of annuities, retirement income and planning products, sponsors of occupational Defined Benefit and Defined Contribution Schemes and firms providing advice in this area. The consultation discusses how consumers will be able to sell their annuity incomes on the secondary market. The changes proposed will primarily affect consumers who hold or will hold annuities in their name and contingent beneficiaries with an interest in such annuities.  

The secondary market is part of the UK Government’s newly introduced pension freedoms for individuals accessing their pension savings. In December 2015, the Government announced tax changes effective April 2017 that would allow individuals selling an annuity to (i) receive all sale proceeds as a taxable lump sum; (ii) have the proceeds transferred into a flexi-access drawdown fund; or (iii) arrange for the proceeds to be used to buy a new ‘flexible’ annuity. The changes proposed in the consultation are designed to help ensure adequate consumer protection whilst promoting effective competition in the interest of consumers. The FCA has proposed that brokers must outline upfront the charges associated with selling a consumer’s annuity and must ensure the consumer consents to such charges, as opposed to receiving the charges as paid commission from firms acting as buyers.  To help consumers estimate 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. The proposed rule changes also require firms to recommend to the seller that they seek regulated advice or guidance from Pension Wise and outline any annuity specific risk warnings. Responses to the consultation are due by June 21, 2016. 

View the consultation paper.