“There is a lot of focus on ensuring people get the best possible cash value from selling their annuity which is important but we’d like to see a requirement for people to have access to the whole flexi-access drawdown market if that is the option they select,” Bell said.
“We need to avoid a market where consumers are either forced or encouraged to set up their flexi-access drawdown with the same firm that buys their annuity or perhaps from a small panel of flexi-access drawdown providers with links to the annuity purchaser.
“This could result in consumers being forced into selecting a flexi-access drawdown provider with higher costs, a poorer range of investments, a more limited choice of retirement options or a lower standard of service. Replacing one bad egg with another is not a good outcome for the consumer.
“If the flexi-access drawdown options of consumers selling their annuity are restricted, we will potentially end up in a position where consumers are suffering from failings equivalent to those that the second hand annuity market is trying to address, where many individuals were defaulted into a poorer value annuity than might have been available to them.
“In the spirit of extending choice and flexibility of the pension freedoms to annuity holders, anyone selling their annuity in order to create a more flexible income should be able to benefit from a free choice of all flexi-access drawdown providers.“
More detail needed
Gareth Shaw, head of consumer affairs at Saga Investment Services, also welcomed the government’s decision but said more detail was needed: “Thousands of people who receive minimal income from annuities they were forced to buy will benefit from these new rules.
“The government has set out a robust framework to ensure that consumers are protected and that a secondary annuity market is functional but there’s still more detail to be developed – in particular how consumers can understand whether they’re getting a good deal when selling their annuity.
“The government has recommended the development of a tool or calculator, but what happens to people who aren’t digitally engaged but want to sell their annuity? Requiring advice is a good thing – and it’s important that the rules around advice take in the experiences of consumers since the pension freedoms were introduced.
“Extending Pension Wise is a helpful first step, but it won’t be enough for many people. Therefore, it’s vital that the Financial Advice Market Review and the next consultation on the annuity market works to create stronger links between Pension Wise and the advice industry,” Shaw added.
