Significant risk to pensioners who choose to sell their annuities – FCA
22/04/2016
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.
Pension changes
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.
Concerns
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.
Share this..
Related stories
The spin on Sir Fred Goodwin continues
The UK government is rumoured to be behind further suggestions in the financial press this weekend that the true cost of Sir Fred Goodwin's pension will be in the region of £30 million. These ludicrous claims are aimed at forcing Sir Fred Goodwin to give up part of his pension arrangements even though the UK government formally agreed these back in October. So why are the UK government spending s...
Read MoreOlder people ignore pensions crisis
According to a new survey, older people are ignoring the message over the predicted pensions crisis.The research, conducted by financial services company Edward Jones, revealed that 30 per cent of people aged 45 to 54 and 12 per cent of those over 55 had not started saving for their retirement.Andrew James, retirement planning manager at Edward Jones, commented: "The most worrying aspect is the hi...
Read MoreThe difference between private sector and public sector pension arrangements?
The release of Lord Hutton's report into public sector pension schemes perfectly illustrates how an explosion in the number of public-sector workers in the UK has contributed to an ever-growing liability for UK taxpayers. The vast majority of public-sector pension arrangements are based on an employee's final salary which can often bear little or no resemblance to the potential investment return o...
Read MoreMPs call for pension account simplicity
Simplicity and low cost are the key factors which will be necessary to make the government's proposed new system of 'personal accounts' for pension saving successful, MPs have stressed.Under plans announced in a white paper in December workers will automatically be enrolled in the new personal accounts system if they do not have access to an existing occupational pension scheme, with employers exp...
Read MoreSavers still unable to access Pension Wise guidance
23/03/2015 Savers are still unable to access free, face to face guidance from the Pensions Wise service, experts have warned. With only a few weeks left before the new pension regulations come into place, many retirees have been unable to access the impartial advice sessions they offer. The phone line to book face to face sessions from Pensions Wise has not yet been opened, and many savers...
Read More