Figures from across the pensions industry convinced the government there would be sufficient demand for second-hand annuities before ministers scrapped the proposals, Money Marketing has learned.
Internal analysis from the Treasury obtained under the Freedom of Information Act – the full results of which will be published in this week’s print edition of the magazine – sheds light on how the government was preparing to go ahead with plans to introduce a secondary market for annuities based on a perceived demand from the industry.
The analysis shows that while the impact of the reforms on annuity providers would have depended on how many chose to allow their customers to sell their annuities, the government expected that most would choose to do so.
The document reads: “For the last year, the government has been engaging with a wide range of firms including annuity providers, potential intermediaries and potential investors. Potential investors include life insurance companies, pension schemes and investment fund managers, all of whom have expressed an interest in purchasing annuities, giving the government confidence that there will be demand for annuities in a secondary market.”
On the demand side, the government also identified two groups would have a “pure economic interest” in a lump sum, rather than the lifetime income stream: those in debt and those seeking to invest.
In September 2016, however, just one month before the plans were officially scrapped, Hargreaves Lansdown announced it would not operate a broking service for secondary annuities.
The analyis shows that the government had also lined up a number of options for when customers would be forced to take advice or guidance on selling their annuities.
For its analysis, the government said it was assuming that it would have followed the FCA’s approach and placed the burden on annuity providers to make sure that customers had received guidance or advice where necessary.
However, it appears it later considered that these would still not act as adequate safeguards for annuitants, dropping the plans to create the secondary market since “the consumer protections required could undermine the market’s development.”