The requirement would apply to all consumers who are considering the sale of an annuity and who are not otherwise seeking full regulated financial advice.

In its submission to an FCA consultation paper, the PFS said that while broadly welcoming the pension freedoms, the PFS has used its submission to the consultation, Pension Wise Standards: changes for secondary annuity market guidance, to outline its concerns about the extension of such freedoms to those who have already committed to an annuity.

Personal Finance Society chief executive Keith Richards said that while giving up guaranteed income in exchange for a lump sum may be appropriate in some circumstances, consumers needed to be made fully aware of the associated financial risks of selling their annuity.

He said: “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.”

“For the new market to work effectively, it will need to combine a robust package of consumer protection measures with specific and transparent protection for advisers, who could be faced with another wave of insistent client issues.”

Mr Richards urged advisers not to get caught up in facilitating an activity they have recommended against.

He added: “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.” 

The PFS has welcomed the FCA’s commitment to raising the standards that apply to secondary annuities guidance, but has underlined five additional knowledge requirements that individuals must have in order to effectively offer guidance on this complex area of Financial Planning. These include:

 An understanding of the Mental Capacity Act, an ability to assess capacity and knowledge of how to effectively deal with ‘substituted decision makers’.

 An awareness of the complicated interactions with the means tested benefit system, including local authority means tested social care.

 The ability to identify undue third party influence on older clients, and the ability to communicate the broad nature of prevalent scams.

“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,” Mr Richards said.

“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.”