Once again, the FCA finds itself in the unenviable position of having to be the chief enforcer for the Government’s latest idea to shake up pensions. This time it is the creation of the secondary annuities market, where savers can exchange their guaranteed income for life for upfront cash.
The pension freedoms reforms have already wreaked havoc with the concept of a pension being a vehicle to see savers through retirement. A pension is now seen as something to access sooner rather than later, or at the other end of the spectrum, something to use as a tax planning mechanism to pass down money through the generations.
Adding tradeable annuities into the mix has rightly put many in the pensions industry on high alert, not least the FCA itself.
Unlike pension freedoms, the Government is trying to take the time to get the secondary annuities market right, and aims to allow cash for annuities from April 2017. It is also good to see that in the context of allowing providers to buy back annuities from existing customers, this marketplace will be regulated and will be carried out through a third party, with buyers needing special regulatory permissions.
How buybacks will work, and at what value of annuity savers will have to take advice, are all details to be teased out over the coming months.
But for those that are wary about secondary annuities, the concern is not one of mere practicality about how the market will work.
In its consultation this week, the Treasury also talks about developing a “tertiary” market, which would allow second-hand annuities to be packaged up and sold on. Here we are, over a year away from the creation of the secondary annuity market, and we are already on to the next level of reselling.
In an interview with Money Marketing this week, FCA director of strategy and competition Chris Woolard compares tradeable annuities to traded life settlements, given the inherent uncertainty about making payments based on unpredictable events, such as when someone is gong to die. Given the fallout with the likes of Keydata and Catalyst, this comparison is a worrying one.
If the secondary annuity market is causing concern, the tertiary market is a whole different ball game. As I recall, the packaging up of mortgages and selling them on did not exactly leave the financial services industry smelling of roses.