Annuities – changes to information requirements

The FCA has been carrying out a series of reviews and enhancements to the annuity market that started in 2014 with the thematic review of annuities.

The review work arose out of concerns that – especially pre-pension freedoms – many people were just defaulting to the annuity rates offered by the provider of their pension plan when they wanted to start taking an income. Providers were retaining funds through inertia unless an adviser was involved and researched the best annuity rate for the client. The same issue concerned enhanced annuities where many people who could have obtained better income because of a health condition were defaulted into a standard annuity rate.

In 2016, the FCA encouraged people to shop around instead of simply accepting the default rate.

As a result, the FCA is now requiring firms to provide the following information prompt in a standard format:

  • the amount used to purchase the proposed annuity;
  • whether the annuity is single life or joint life;
  • whether payment is in advance or in arrears of the start date;
  • whether the income paid by the annuity has a guaranteed period;
  • whether the income will increase in line with inflation or some other specified rate;
  • the provider’s own quote; and
  • how to shop around (the phone number and URL for the Money Advice Service).   

Where the prompt indicates that the consumer could get a higher annual income elsewhere, it will show what that income is and the difference between it and the income quoted by the provider.

It should also make consumers aware they may be eligible to purchase an enhanced annuity.


How does this affect adviser firms?

It is clear that much of the onus for providing this information lies with annuity providers. However, advisers also have obligations to provide similar information. 

In PS17/12, the FCA states:

“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 that 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.

This is reflected in COBS 19.9.7R … It follows that, where an intermediary firm is used by a consumer, both the intermediary firm and the relevant annuity provider will be required to provide the information prompt.”

It is essential that all intermediaries familiarise themselves with COBS 19.9.7R because it describes the process that MUST be followed when comparing annuity quotes. 

The FCA also expects firms to inform customers of the implications of transferring if they have a PCLS entitlement of more than 25% of the fund value. And they expect clients with a Guaranteed Annuity Rate (GAR) or a potential GAR to receive additional comparisons and warnings. 

The FCA has also clarified that it is standardising underwriting question requirements and that the information should be provided as part of the pre-sale disclosure for annuity sales.

These requirements are effective from 01 March 2018.

An example of the ‘Personalised annual quote comparison’ can be seen under section 3.5 of the consultation paper CP16/37 that can be accessed here.  

Important Note: ATEB news is intended to provide general information ONLY. The content, including any views expressed or guidance provided, does not replace the need to comply fully with FCA Rules and Guidance. Unless you have discussed news article content with ATEB, and specifically how it relates to your circumstances, then ATEB disclaims all liability and responsibility and actions arising from any reliance placed upon it. For the avoidance of doubt therefore, any reliance you place on such information without our consultation is at your own risk.

ATEB Compliance offers compliance and regulatory advice.

ATEB Suitability provides report writing software for the financial services market.

Our View

This is relevant to all firms advising in the pension decumulation market. While a lot of the information will be issued by the pension provider intermediaries need to be aware of how and when it will affect them and their customers.

Action Required By You

  • Consider how the rule changes apply to your firm now and in the future;
  • Ensure all staff that will be effected by the changes are aware of the updated rules;
  • Familiarise yourself with COBS 19.9.7R and the associated Annex;
  • ATEB clients should speak with their account manager as necessary; otherwise contact ATEB here to find out how we can help.
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Technical Manager - Often referred to as the Oracle or the Sage, Alistair has a wealth of financial services experience. He is our go-to Technical Manager and enjoys nothing more than a complicated conundrum. Feel free to test his renowned knowledge by getting in touch.

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