My Lords, this amendment introduces an advice requirement for some of those consumers who wish to sell their annuity income streams on the secondary market.
We have already debated the extension of Pension Wise, enabling it to offer guidance for consumers in this market. The Government recognise the importance of protecting all who have a right to receive an income under a relevant annuity, not just the primary annuity holder, and this has been a concern raised by noble Lords previously. That is why we can clarify that we will be making the free and impartial Pension Wise guidance service available to anyone with a relevant interest in a relevant annuity.
Today, the Government are introducing a new measure to ensure that consumers are adequately supported when making the complex decision of whether to sell their annuity income streams. A regular income stream from an annuity is a valuable asset and, for the majority of individuals, it will be in their best interests to keep their annuity. Therefore, it is important that annuity holders understand the value of their income stream and are informed about the options available to them.
The Government have consulted on the steps that should be taken to support consumers with this complex decision. In addition to Pension Wise guidance, we asked whether consumers should be required to take
financial advice in order to receive a tailored recommendation to inform their choices. We also asked whether the safeguards in place should vary depending on the value of an annuity to ensure that consumers with lower value annuities do not have to pay disproportionately high costs in order to sell them. There was broad support from both industry and consumer groups for requiring advice above a threshold. The Government have listened and are putting this measure in place through a government amendment to this Bill today.
This proposed new clause will place an obligation on the Financial Conduct Authority to make rules requiring certain authorised firms to check that advice has been received before annuity holders may sell their annuity income stream. The FCA will determine which businesses will be required to make these checks, what the checks will entail and when they will be carried out. We expect that the FCA will be consulting on its proposed rules during 2016.
The threshold for advice, including how it will be calculated, will be set out by government through secondary legislation. The Government will also lay secondary legislation to specify what type of advice individuals must have received. In specifying appropriate financial advice, the Government’s intention is to require advice to be FCA-authorised and regulated. The Government also intend to legislate that all UK buyers in the secondary market for annuities will be FCA-regulated. This will allow the FCA to design specific rules governing the conduct of both financial advisers and buyers in this market, and the Government will work with the FCA to consider any conflicts of interest that may arise between these parties. The Government are engaging with financial advisers and their representative bodies with the aim of ensuring that there will be enough participating advisers to meet consumer demand when the market opens. Within the financial advice market review, the Government are considering how the availability of financial advice can be improved, particularly for those who do not have significant income or wealth. The review is to publish its recommendations by the time of Budget 2016, and the Government will ensure that the financial advice requirement in the secondary annuities market fully reflects the outcomes of this review.
A further power will allow the Treasury to exempt from this advice requirement those individuals whose financial circumstances meet certain criteria. The Delegated Powers and Regulatory Reform Committee has recently recommended that this power be affirmative rather than negative, and the Government will respond to the House on this recommendation at the earliest opportunity. The Government will consult on the regulations to be made under all powers afforded by this clause in 2016.
Today’s debate coincides with the Government’s publication of their response to the March 2015 call for evidence on the creation of a secondary market for annuities. This sets out the wider set of proposals around, and the next steps for, the implementation of the secondary market. The response gives further detail on how the market will operate, including tax considerations as well as further details on the consumer support framework, part of which the Government are legislating for in
this Bill. Your Lordships will no doubt be minded to consider the wider policy in today’s discussion, and your views on these proposals are welcomed. I beg to move.