Significant risk to pensioners who choose to sell their annuities – FCA
Come April 2017 when the market for selling an annuity opens, the City regulator, the Financial Conduct Authority has claimed that many pensioners will be at significant risk if they opt to sell their retirement income for a lump sum.
An estimation has been provided by the government that 30,000 people are expected to cash in their pension products when the changes begin.
In response to the concerns the Financial Conduct Authority (FCA) has collated risks and potential dangers associated with selling retirement incomes. Some of the concerns include pensioners calculating good value for their annuity, the exposure and susceptibility to scams, and pressure being placed on those with debt to sell their pension product to settle the outstanding bill.
From April 2017 pension changes come into place, which will allow individuals who receive a lump sum from selling their annuity, to only pay tax at their highest marginal income tax rate. Currently, it is possible to sell an annuity, but a tax charge of between 55% and 70% makes it an impractical option for most to participate in.
It is predicted that approximately five million people in the UK currently have an annuity as part of their retirement income.
Owing to a tax collection of an estimated £3,200 per annuity seller, a windfall of approximately £960m is expected by the Treasury during the first two years of the new scheme.
Director of strategy and competition at the FCA, Christopher Woolard, has raised concerns over the pending changes.
"We recognise that some consumers may be particularly vulnerable.
"We have set out proposed rules and guidance that will help ensure that consumers have an appropriate degree of protection should they decide to sell their annuity income."
Those proposals include:
• A requirement for sellers to seek financial advice for annuities over a certain value
• An extension to the government-backed, free Pensions Advisory Service
• Sellers to be given specific warnings of the risks early in the selling process
• Consent to be gained by a broker from anyone else who would benefit from the annuity, such as a spouse, before it is sold
• Brokers and advisers to set out their charges upfront to customers
• A 14-day cancellation period and access to the Financial Ombudsman if sellers are unhappy
In addition to Woolards concerns the FCA has also warned that “there is a significant risk of poor outcomes" for consumers selling their annuities.
Need Financial Advice?
If you have any personal finance questions related to this news article, then please contact our financial advisers. You can get in touch by asking a question online, calling us on 0800 092 1245, or by arranging a visit.
Public sector pensions in disarray
As many across the UK take time out to consider their own pension arrangements it has been revealed that the UK taxpayer will be taking on a significantly increased burden in the medium to longer term. Figures buried in the back of this week's budget showed a £2.3 billion shortfall in public sector pension payments which was covered by the Treasury using taxpayer's money. This was for the year 20...Read More
Should the formal retirement age be abolished?
A report by the Equality and Human Rights Commission has today prompted a very controversial and deep thinking argument regarding the UK retirement system. The commission has called on the government to abolish the formal retirement age and indeed introduce incentives for employers to retain those more mature workers and use their experience for as long as possible. But is this something of a doub...Read More
Have you made sufficient pension provisions for the future?
As money becomes ever tighter in the UK marketplace it is still vital for consumers to look further ahead and ensure they have sufficient pension provisions for the future. Many of those who have moved employers in the past and have a number of pension scheme "pots" will probably be aware of a growing trend which has seen many pension providers offer incentivised terms to transfer people out of th...Read More
Lifetime ISA: Government urged to clear “muddy waters”
31/03/2016 The Chancellor has been told to urgently establish an independent pensions review after confusion over the role the Lifetime ISA has in pension savings has “muddied the waters”. Scottish National Party MP, Ian Blackman, called for the Tories to provide more information to savers about employer contributions and the potential dangers to retirement savings that sacrificing a wor...Read More
UK plc set to cut pension contributions
In a move which could have long-term consequences for a growing number of workers in the UK it has been revealed that Aviva , the U.K.'s second largest insurer, is set to scrap free pensions for defined contribution members. Aviva is the latest in a long line of companies looking to reduce their pension payments for defined benefit schemes with employees having to pay 1% of their salary from July...Read More