Pensioners face risks selling annuities, says FCA

(Article taken from Airivo Capital Ltd)

Pensioners face risks selling annuities, says FCA

Significant risks face those who decide to sell a retirement income - such as running out of money in old age, the City watchdog has said.
A market for people to sell their annuity will be launched in April 2017, meaning pensioners can exchange their set retirement income for a lump sum.
The government estimates that 300,000 people will cash in their products.
Now the Financial Conduct Authority (FCA) has outlined the dangers that could result from selling up.
Concerns include individuals struggling to calculate what a good value for their annuity might be, vulnerability to scams, and people with debts being put under pressure to sell their annuity to settle the bill.

Tax billAn estimated five million people in the UK have an annuity - a retirement income bought with pension savings.
As an extension to the pension reforms allowing people to cash in their pension pot before retirement, people who have already bought an income for life with their pension pots will be able to reverse that deal.
Currently, it is possible to sell an annuity, but a tax charge of between 55% and 70% makes it an impractical option for most people.
From April 2017, individuals who receive a lump sum from selling their annuity will only pay tax at their highest marginal income tax rate.
The Treasury is expecting a tax windfall of £960m over the first two years of the scheme, owing to the tax collection of an estimated £3,200 per annuity seller.
Protection Image copyright PA The FCA has now warned that "there is a significant risk of poor outcomes" for consumers selling their annuities.
Christopher Woolard, director of strategy and competition at the FCA, said: "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

Tom McPhail, head of retirement policy at Hargreaves Lansdown, said: "This is a complex market to create from scratch; however, we know that many annuity holders will be interested in trading in their income for a lump sum.
"The FCA has come up with a good package of measures to try and protect investors, while also giving them the freedom to manage their own money."
Others are more sceptical.
"There are a number of missing pieces to make this brand new market work efficiently," said Steven Cameron, pensions director at Aegon.
"There is no central point for consumers to offer up their annuity to a range of buyers, with consumers instead being encouraged to approach each buyer separately to get the best deal.
"Each potential buyer may demand their own medical evidence which will be timely and costly."
The Association of British Insurers said there was a number of issues to work through in "limited" time before April 2017.

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7 Reasons to Transfer Your Pension Today

(Article take from Airivo Capital Ltd)

7 Reasons to Transfer Your Pension Today

There are numerous reasons why people want to transfer their pensions before they reach retirement age, improved performance, reduced charges, enhanced death benefits etc.
However, appealing as it may sound, it should be a carefully considered decision and , wherever possible, financial advice should be sought.

1. Improved Performance Some people opt to switch their pension because they are in an underperforming scheme delivering poor – or non-existent – returns.
If your scheme is performing poorly, you may well want to move your money elsewhere.
But once again, you need to tread carefully, and ask yourself whether you are prepared to invest your pension pot in more risky funds to get a better return.
If you are approaching retirement age, you need to think particularly carefully before making such a decision.

2. Lower Charges Some want to transfer their pension to reduce the excessive charges that erode their returns leaving them with less money when they retire.
Find out how to review your pensions

3. Access to a wider range of investments and funds Switching your pension may be a good option to access a wider range of investments. Self build SIPP's are a perfect vehicle for providing greater flexibility and control when selecting investments.

4. Moving to a new employer
When you leave one job to move to another one, you are treated as having left the workplace pension scheme, but do not lose the benefits you have accrued.
At this stage, you may decide that you want to transfer your pot to the scheme offered by your new workplace.
But if you are thinking about switching, it is important to do this for financial reasons – and not emotional – reasons. It’s crucial that you don’t transfer out of a first-rate scheme simply because you want to cut all links with an old employer. Make sure you research carefully before making the move.

5. Improved level of service
Many policy holders are dissatisfied that their current level of service does not warrant the excessive charges paid each year to their providers. A financial advisor will provide a more hands on approach and also provide you with more control over your retirement plans.

6. Enhanced death benefits If you feel the death benefits on offer with your current scheme do not match up those offered by more modern schemes, you may want to transfer your pension to a different scheme.
You might, for example, want to move your money into a scheme that allows one of your relatives to inherit your pension when you die, rather than simply spouses or dependents. The same might apply if you are not married to your long-term partner, but want them to inherit your pension once you’re gone.

7. Consolidating multiple pensions As people change jobs more frequently during their working life, they often accumulate a number of small pensions along the way.
It can be hard keeping tracking of schemes, and difficult to really know how much your total retirement is worth.
For this reason, many savers want to clean up their finances by consolidating their pensions into one pot.


If you are thinking about transferring your pension to another provider then consider whether the benefits outweigh the possible entry or exit charges. In any case it is strongly recommended to have your pension reviewed and seek financial advice.

To review your current arrangements click here