Govt backs private sector bureaux to run tradeable annuities

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The Government is preparing to allow private sector companies to set up brokerages to serve the secondary annuity market.

Though the Treasury delayed the start date of the reforms to April 2017 – a year later than originally proposed – it is pushing ahead with plans that will allow an estimated five million people to sell on their annuities.

As part of the consultation process the Government explored how individual annuities should be sold but is due to announce it will allow multiple bureaux to participate, rather than single portal, Money Marketing understands.

Aviva head of financial research John Lawson says: “If you want quotes on an annuity those firms are already out there and essentially this is the same thing in reverse.

“Existing infrastructure can form the basis of a bureau, the machinery is already there – that seems eminently sensible.”

It is also expected the Treasury will reverse its initial proposal to block ceding providers from buying back their own annuities.

Originally, the Government said consumers might believe they could only sell to their provider.

But insurers warned consumers were likely to get worse prices if they were excluded from the process.

Money Marketing previously revealed plans to exclude people on means-tested benefits from the reforms. It is unclear whether policymakers plan to stick with this idea.

Retirement Advantage pensions technical director Andrew Tully says: “Excluding people on means-tested benefits would be very difficult to enforce, I don’t think what has been suggested is particularly viable.”

The Government estimates around 650,000 people would be barred from selling their annuities if the exemption was maintained.

Clarke Robinson & Co managing director Steven Robinson says: “There are a lot of aspects of this that haven’t been realised yet. Firstly, there will need to be a medical assessment even to quote properly. Otherwise the person buying it won’t get a good price.

“I think you’ll also find there is much more demand than advisers willing to work in the market. FOS are starting to award clients where they went into drawdown instead of buying an annuity and this is one step worse.

“It could be the PI insurers dictating which advisers remain in the market.”

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Comments

There are 4 comments at the moment, we would love to hear your opinion too.

  1. I don’t know all the details of how these transactions are planned to work, but surely the first requirement will have to be that those thinking of selling an existing annuity in payment will have to take advice, as do those planning to encash their pension fund/s or transfer from DB to DC. That in turn will mean advice costs and, for advisers, the spectre of clients insistent upon going advice not to sell their annuity. How many of us are likely to want to get involved with that type of business?

    Then there’ll be the tax charge on the commuted value (reported elsewhere as at least 55%, possibly as much as 70%, though one assumes not less than the recipient’s highest marginal rate).

    The only justification (as I see it) for commuting an existing annuity is for transfer (with no tax charge) to an underwritten/enhanced annuity delivering a higher level of income, and the viability of that will depend on the size of the surrender value. The whole exercise could cost the annuitant a lot of money only to achieve nothing.

    It’s another mess in the making.

  2. I hope any provider has ample capacity to cope with the massive initial influx likely to be seen of those who think selling a guaranteed income being paid at an interest rate well above that offered by Banks at present is a good idea – only then for the realisation (I suspect) to hit home that the capital amount they will receive is no where near what they expect.

    Massive costs for the broker/providers which need to be absorbed/passed on somewhere.

  3. The laws of commerce will mean that the only looser will be the annuitant. The ceding company will no doubt provide a crap TV and the broker needs to make a profit (as does the receiver of the TV).
    This is going to be a real mess with the FoS & FSCS going to become very busy.
    I sometimes wonder (and I am serious with this) if the F Pack actually sit around dreaming up ways in which to create more catastrophes in the making, just to give themselves more work and so justifying their existence.
    Kind of hoping that by the time this hits main stream I will have gracefully fallen off the perch into retirement (bringing my unlimited liability with me)

  4. Nicholas Holdcroft 9th December 2015 at 4:32 pm

    Disaster. Nothing more to add …

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