‘A step too far’: Industry reacts to Govt U-turn on secondary annuities

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Providers have welcomed the news the Government will no longer create a market for secondary annuities, saying the move would have taken pension freedoms too far.

Last night the Treasury announced it was scrapping plans to allow retirees to sell their annuities, citing a lack of buyers and insufficient consumer protection.

Many providers have backed the decision, saying the plan to introduce a secondary annuities market in April was unworkable.

Retirement Advantage pensions technical director Andrew Tully says: “This felt like a step too far in extending the pension freedoms.

“It was always going to be difficult to find a way for consumers to get good value from trading a lifetime income and ensure they were protected from a poor outcome.”

Hymans Robertson partner Douglas Anderson argues it would have been difficult for savers to get value for money from selling on their annuity.

He says: “While it’s good news for consumers, in the short-term it may not be such great news for the insurance industry which could not afford to assume a U-turn was a possibility.

“Many were busy designing new processes to cater for annuitants considering selling their annuity. Others have been taking greater steps to prepare. For example, some manufacturers and distributors of enhanced annuities were hoping to repurpose their health based underwriting models to assist with pricing.

“On balance though this news should be welcomed. Creating an open, secondary market for selling on annuities would have been no small undertaking and the risk to consumers, and by default insurers, would have been high.”

Old Mutual Wealth pensions expert Jon Greer says the market was likely to have been “fraught with danger.”

Greer says: “It was a political promise made before the practical application of the policy had been considered, but shelving the proposals so soon is a major U-turn that the Government will not have undertaken lightly.

“The new Chancellor has made the bold choice of prioritising consumer protection over a political promise from George Osborne.”

But former pension minister Ros Altmann says the move will leave many retirees disappointed.

She says: “It is a shame this aspect of the pension freedoms is being abandoned and that the overhaul of pensions guidance seems to have undermined a potentially valuable service for people who will now be stuck for life with an annuity they did not want to buy and may not be the most suitable product for their retirement needs.

“It was never going to be a huge market, but for some people it would have been a real benefit to be able to undo their annuity.”

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Comments

There are 12 comments at the moment, we would love to hear your opinion too.

  1. Blow me! SOme sense from Westminster. Is this a first?

  2. I really do struggle to see who would actually benefit from selling their annuity, as per Ros Altmann’s comment. Someone receiving a tiny annuity that they were forced to set up before the small pots rules came in? In theory a cash sum may be better for them than £100 a year from the annuity, but the lump sum would be so small in itself that it’s unlikely to make much difference to them either. It certainly wouldn’t represent “value of money” once the insurer’s costs and profit/safety margin had been factored in.

  3. Sense maybe but at some expense.

  4. It is a failing of politicians generally that they shoot from the hip. There will be many members of George Osborne’s party that could have put him straight on this before he made his announcement, had he asked them.

  5. As Neil suggests, the largest market was likely to be at the smaller end – making any fixed costs potentially prohibitive.

    It isn’t a surprise given that, before reaching a capital value, the purchaser would need to factor in so many risks and costs that the value (I suspect) would have been unexpectedly low – even for those who had only recently annuitised.

    No doubt many consumers will be frustrated and yes, some costs will have been wasted BUT at least we’ve not got to a point where the secondary market is faced with a wave of £50 per month annuitants expecting £20k in exchange and no one ultimately being willing to sell due to the (perceived) poor capital value being offered in return.

  6. Can we have a comment from Mr Webb who first raised this stupid proposition while he was MP. I imagine his time at Royal London has made him realise what an idiot he was for even contemplating this idea

  7. If someone over the age of 55, still working, can draw from their pension pot then why cant I.
    I am 69 and receive a paltry sum each month. I would prefer to manage my own pension. Of all the uturns, by all the governments in all the world this unfair and unjust for retired people. Do I have to go back to work and start another pension?

    • The problem is that, under the secondary annuity market, in exchange for the paltry annuity payment each month, you would have received a paltry lump sum.

      Whatever the fair lump sum value of your annuity was would have been eroded by the cost of underwriting you to get some idea of how long you were likely to live (since the purchaser would only receive the income payments until you died) and administering the purchase, along with a profit margin for the purchaser, since they aren’t charities and have to make money.

      The paltry lump sum would then be taxed up front, further reducing what you received.

      You may still prefer the resulting amount over a meaningless monthly income, but it wouldn’t represent anything close to good value.

  8. Imagine a world where politicians thought through their ideas before making them public! Imagine a world where the people making the decisions asked the people at the coal face if they were workable or not!

    What a world thaty would be.

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