Throughout all the pandemonium of MiFID II and GDPR, it seems that annuity market prompts have drifted under the radar. Firms are required to implement these changes by 1st March 2018 (that’s less than a week away… eeep!).
Shockingly, eight out of ten retirees could have received a higher income if they had shopped around. The lack of ‘shopping around’ by consumers is a result of the pension freedoms which came about in April 2015. The FCA’s ‘remedy’ for this is to require firms to provide consumers with an annuity quotation comparison. This is to help consumers identify the best annuity deal for them.
The rules require firms to include, in a prescribed format of course, the following information:
The information needs to be provided by both the intermediary firm and the relevant annuity provider to the customer (COBS 19.9.7R). The “prompt” information requirement will only be triggered when a guaranteed quote is provided by a firm.
The changes highlighted by the FCA are for firms to also inform customers of any implications, or possible implications, to them if transferring a PCLS entitlement of more than 25% of the fund value. Plus, they expect clients with a Guaranteed Annuity Rate (GAR) or a potential GAR to receive additional comparisons and warnings.
The FCA have also said that clients should also be ‘made aware’ that they may be eligible to purchase an enhanced annuity. The prompt need only include information regarding how their health and lifestyle may entitle them to a higher annuity income. They don’t want much, hey?
The idea of firms providing clients with higher annuity rates and giving them prompt information on annuity quotes, is absolutely a step in the right direction in our opinion. However, we are not sure that this will achieve all that is desired.
Firstly, one of the main concerns with the implementations is that customers may receive inconsistent quotes as firms offer different underwriting approaches. The FCA have argued that enforcing minimum annuity comparisons would “impose a disproportionate cost burden on providers”. This arguably is putting a higher priority on minimising costs to providers rather than ensuring good outcomes for consumers.
Secondly, as the client’s health and lifestyle is not taken into account within the initial comparison, the income may differ than the one provided and could result in the customer not receiving the best income option. There is so much fluffiness in the detail.
Overall the templates the FCA have provided show that this is a step in the right direction (showing the providers quote and the highest market quote for example), are straight forward to follow and hopefully, what most firms are already doing.