The Personal Finance Society (PFS) has called for Pension Wise guidance sessions to be made compulsory for consumers looking to sell their annuities.

In its submission to the FCA's consultation paper Pension Wise Standards: changes for secondary annuity market, the organisation has noted that the guidance requirement should apply to all individuals who are planning the sale of an annuity, and not already seeking fully regulated financial advice.

While the PFS has noted that it welcomes the recently introduced pension freedoms, it has voiced reservations regarding these freedoms for those who have already committed to an annuity. PFS CEO Keith Richards noted that people need to be made aware of the risks of exchanging a guaranteed income for a lump sum before making their decision.

“If a consumer is attempting to deal with what they view as a poor value annuity by opting for a poor value cash lump sum, it is likely to compound the issue and lead to financial detriment in the future,” he said.

The PFS has offered clear guidance to its members since the introduction of the freedoms and has emphasised the risks and unintended consequences involved.

It went on to provide key requirements that individuals must have in order to effectively offer guidance in this area, in its submission to the FCA.

Richards said: “The sector must avoid the associated exposure to conflicts of interests and demonstrate that professional advisers will only act in accordance with their personal recommendations and always in the best interests of the client – especially if that means walking away from a commercial opportunity.”

“It makes good sense for the Pension Wise guidance service to act as an initial contact point for consumers who may later seek, or indeed be signposted to full financial advice regarding the sale of their annuity,” he added.

“But it is critical that individual guidance providers have the knowledge and skills required to be able to communicate the complexities and risks associated with entering this newly formed market.

“This is particularly important given that prior to pension freedoms the government was concerned that retirees were seriously underestimating life longevity and increasingly risked poverty in later life.”

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