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Osborne unveils secondary annuities overhaul


The Government has unveiled details of a new secondary annuities market to be introduced in April 2017, including a U-turn on plans to block providers from buying back guaranteed income streams from existing customers.

Policymakers had originally planned not to allow providers to buy back annuities, citing the risk of insurers exploiting a “captive market” and the potential impact on insurers’ solvency.

However, providers warned this would mean customers would be likely to get a worse deal.

And in June Money Marketing revealed the Treasury had backtracked and planned to allow providers to buy back annuities from existing customers.

Money Marketing subsequently revealed this would be facilitated by private sector third-parties such as annuity bureaux.

People wanting to sell annuities above a certain value will be required to take advice, although this threshold has not been set.

In a call for evidence published this morning, the Treasury says: “While the Government recognises the benefits both to annuity holders and the industry of permitting this ‘indirect buy back’ through brokers, financial advisers or other intermediaries, it acknowledges that an extra layer of cost would be imposed in comparison to direct buy back. In addition, buy back would only be possible if platforms or brokers enter the market.

“Overall, considering the benefits and risks associated with allowing buy back, the Government agrees that it should be allowed indirectly.

“The Government plans to legislate to create a further regulated activity for buying back an annuity. Annuity providers will need to hold this permission in order to buy back their annuities through a regulated intermediary.

“The Government expects that the FCA will consult on its approach to authorising firms for this permission, together with any related FCA rule changes.”

The Government will also allow annuity providers to buy back low value annuities directly, although it has yet to determine the threshold at which this will be allowed or how this will be measured.

In addition, the Treasury says it does not consider second-hand annuities suitable for retail investors “given the complex pricing and liquidity features of the products”.

“Therefore, the Government intends to remove this ability through secondary legislation and will ask the FCA to consider what further steps are necessary to protect UK retail investors, for example with regards to onward sale in the “tertiary” market,” it says.

Policymakers will, however, allow second-hand annuities to be packaged up and sold on after they have been surrendered.

The Treasury says: “Some potential investors have indicated that they might seek to securitise annuities or place them in funds in order to make them available to other investors. However, the ability to reassign the annuity income directly will provide greater confidence in purchasing. The Government’s view is that in order to promote liquidity in the secondary market, it should not place restrictions on buyers’ ability to reassign annuities once purchased.

“In conjunction with the proposed regulation of the secondary market, this onward sale of annuities poses fewer consumer protection and tax avoidance risks. The Government does not propose to restrict any entities from purchasing on the tertiary market, but will be considering with the FCA whether to prevent UK retail investors from purchasing rights under annuities that are re-assigned on the “tertiary” market, in order to protect them from a complex financial product.

“The Government will consider whether any further secondary legislation is required in order to allow the ‘tertiary’ market to function.”

While savers will be able to cash in their entire annuity under the proposals, they will not be allowed to assign chunks of their guaranteed retirement income. The Treasury says this would have been “highly complex and create additional costs”.

In addition, the Government intends to work with the FCA to create an online tool which will allow annuity holders to enter their details and receive an estimated range of the price they would get if they sold their annuity on the secondary market.

Following the March 2015 Budget Money Marketing revealed Government plans to exclude 650,000 people on means-tested benefits from the reforms.

The consultation response published confirms the Treasury has u-turned and people in receipt of means-tested benefits or in social care will also be allowed to sell on their annuities.


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There are 17 comments at the moment, we would love to hear your opinion too.

  1. For heaven’s sake George – give it a rest. Stop fiddling with pensions.

  2. Lol, so those already receiving means tested benefits, will be able to sell an annuity, blow the proceeds, then get just as much income from the state….?

    And George Osborne suggests, that he is trying to promote fiscal responsibility and reduce the welfare budget..

    Oh dear, F minus George

  3. Harry

    Why would he give it a rest?

    It’s just another part of the cynical plan to get his hands on the income stream tax now, in line with his pension freedom ransack.

    All of a sudden the captive market (which will be the main source of the revenue) doesn’t matter – what matters is that as many people as possible withdraw their pension funds.

    The people of this country are going to be bankrupted at the altar of free market enterprise.

    And no-one but no-0ne is revealing any of this o the public.

    Ian Coley

    • Ian

      I have done my damndest to point this out. But then you , me and few others are voices in the wilderness. I actually posted that these ‘Freedoms’ were nothing but a tax grab the week they were announced last year. Of course the press thought it wonderful as they pander to the lowest common denominator. The industry salivated at the thought of an enhanced income stream and the dear old public were just left confused.

  4. Another tax grab?

  5. This is still part of the Pension Simplification process???

  6. Unless I am missing something, I don’t see how this can possibly work to the financial advantage of the annuitant. The purchaser of the annuity, who is merely buying a finite and indeterminate income stream, unless commercially suicidal (so let’s not rule out the life assurance industry here, on past evidence), will surely want detailed medical underwriting to take place on the annuitant, prior to parting with any cash. This is certain to be more than a basic declaration of good health and is likely to involve GP reports and, possibly, medical examinations. As a result of this (expensive and time-consuming) medical underwriting, those with impaired life expectancy will be identified and will, no doubt, find it difficult (in some cases impossible) to find anyone prepared to buy their annuity at a meaningful price. For the rest in “normal” health for their age, the purchase terms offered is likely to factor in the cost of administering the sale as well underwriting the sale as well as covering the cost of administering/underwriting the cases that do not proceed for whatever reason and is bound, furthermore, to take a pessimistic view when it comes to assessing the “normal” life expectancy of the annuitant(s).

    The net result of all this (before you start factoring in further unaffordable advice costs, should these be involved) is likely to produce distinctly indifferent results for the annuitant who, after all, is there first and foremost to deliver a profit to the annuity provider and to the annuity purchaser (who may now be one and the same!). None of this means, of course, that some healthy annuitants will not make the decision to sell back their (frequently small) annuities on relatively unattractive terms, cash in the proceeds of sale, accelerate the income tax take for the Treasury and then buy a new kitchen with the net proceeds of sale.

    All in all, this has all the hallmarks of another dog’s breakfast in waiting, but then the dog has been well-fed of late…

  7. The comments are far more enlightening than the article.

    Is there any way we could get pensions legislation away from the government of the day? It would be so much healthier if a longer-term view were taken and, as the repeated fiddling is destroying public confidence and removing any incentive to save for retirement, an independent pensions legislative body could be a better way forward.

    A short-term tax take benefits the Chancellor’s figures, but at what cost to all of our children?

  8. The whole thing is an effing joke.

  9. Nicholas Holdcroft 15th December 2015 at 3:20 pm

    @ Michael – funnily enough ‘dogs breakfast’ is exactly the same phrase that I used when explaining this to a (learned) client this morning.
    Except there’s nothing funny about this ..

  10. Just what “benefits both to annuity holders and the industry of permitting indirect buy back” does the Treasury have in mind? Or is this just a bit of optimistic, unresearched flannel?

    To how many annuitants is it likely to be beneficial to commute a guaranteed lifetime income stream in return for a heavily taxed lump sum?

    How many providers are likely to want to buy back an annuity that may well have been in payment for years? And, of those who might, how many are likely to offer what the annuitant will consider to be a fair price? Will they pay what it would cost to buy the same annuity today for that particular annuitant? I very much doubt it.

    How many advisers are likely to want to get involved in the secondary annuities market? And of those who do, what will they need to charge to give comprehensive advice which, in most cases, is highly likely to be not to sell?

    Why is Osborne so hell bent on destroying the annuity market?

  11. I have just got my crystal ball out ….. Next budget …. I can see George will offer the facility of being able to “sell” your state pension back to the government in exchange for a lump sum !

  12. Very frustrated I must say with all the pension freedoms and seeing the future claims clearly in the head lights.

    Now if these new offerings require sign off of an adviser, who in their right mind would sign it off.

    We are already seeing advisers going against the requests not to facilitate against advice transactions. This will mean those left after these advisers run away when the inevitable claims come flooding in, will be paying via the FSCS yet again.

    This is very simple one and all, if we do not support a recommendation, refuse to sign, refuse to transact as we advisers will land up holding the baby.

    I must say I am sickened by the fact the regulatory bodies can see it happening and yet again are sitting back, as they know they will not suffer in the slightest. Good businesses will yet again have to pay out due to regulatory failings and a system not fit for purpose.

  13. No doubt just like people not realising they would suffer tax on lump sum, after TFC, under flexi access they will find that they are taxed on the lump sum they receive if they sell there taxable annuity income stream.

    Yet another tax grab by a Government that hides behinds smoke and mirrors of ‘flexibility’.

  14. Once it’s clear what derisory amounts are being offered (for the reasons laid out by Michael Sturgess), I suspect this grand idea will largely self-destruct.

  15. Annuities are bad for the recipients of them.People’s personal circumstances change but annuities do not. This has always been a nonsense and has at last been corrected. There are annuitants out there who got a raw deal just because they traded their lump sums in a low interest rate climate. Now they can get out and re – invest. They will pay tax but are no longer trapped inside an Investment “mortality bet”.

  16. I agree with the other comments above. I can’t see many, if any, reasons why an adviser would recommend the sale of a guaranteed income. One of the main problems being that the adviser is on the hook for the advice indefinitely. Imagine recommending that someone sells their £2,000 per year guaranteed income for £20k and 11 years later they are in care and the family is £2,000 per year short of care costs.

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