The Financial Conduct Authority has changed its stance on annuities after finalising its rules for targeted support.
In June, the regulator published draft rules for its new regime, which it believes will help as many as 18 million consumers with investing and managing their pensions over the next decade.
Initially, it had opted to ban firms from using targeted support to recommend a particular annuity to consumers.
This, it said, was because the irreversible nature of annuities means that any recommendation is “necessarily personalised”.
But, off the back of feedback it received on its initial proposals, the financial watchdog has changed tack.
Some of the responses to its draft proposals relayed concerns that omitting annuities from targeted support entirely may confuse consumers and cause them to opt for an unsuitable product.
In response, the FCA has tweaked its rules to allow firms to direct consumers to whole of market annuity brokerages.
This is one of the more significant changes confirmed by the regulator in an announcement today (11 December).
Explaining its reasoning, the regulator maintained that the degree of personalisation needed to recommend a particular annuity is “inconsistent” with a model based on groups of consumers sharing common characteristics.
Similarly, as annuity quotations are based on specific products, providing these as part of a targeted support journey would give the impression that a firm was recommending a particular annuity.
However, it acknowledged that annuities often play an important role in retirement.
As such, firms will be able to direct consumers to whole of market annuity brokerages, without providing a direct referral within the targeted support interaction.
They must then make it clear to the consumer that any further steps towards an annuity purchase forms part of a “separate sales journey”.
Any firm offering this type of support will also be required to disclose any referral fee they receive from signposting to annuity brokerages.
They must also ensure they direct consumers to the MoneyHelper annuity comparison tool within the ready‑made suggestion.
The FCA said it will not apply the annuity‑specific targeted support rules to fixed-term annuities where the annuity contains a surrender option, as they are not irreversible in the same way as a pension annuity.
Firms will also not be required to check the suitability of a suggestion they have delivered to a consumer on an ongoing basis.
This only needs to be assessed at the point of specifying the ready‑made suggestion for the relevant consumer segment.
The regulator said these “small changes” to its rules in relation to annuities will help to “clarify and simplify” its expectations.
