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Treasury eyes tradeable annuities reforms in final Coalition Budget

The Treasury is considering launching a consultation on plans to allow savers to trade-in their annuity in this year’s Budget, Money Marketing understands.

Government officials have held meetings with senior figures at pension providers in recent weeks to discuss changing the law to allow the creation of a secondary annuity market.

Industry insiders say the Treasury is considering whether plans to allow pensioners to sell on their annuities should be included in the March Budget, the last major event before the general election in May.

In December, pensions minister Steve Webb floated the idea that people who had already bought an annuity, and were set to miss out on the new pension freedoms, should be able to sell the contracts on.

He said: “No one would be obliged to do so, but for those who would prefer upfront capital to regular income, I can see no reason why this should not be an option.”

Webb’s parliamentary adviser told Money Marketing the pensions minister wanted to advance the plans “in this Parliament”. A Treasury spokeswoman says it was Government policy not to comment on the contents of the Budget.

Providers have raised concerns over the complexities of creating a new market at a time of immense change for the industry, although the policy is likely to be viewed as a potential vote winner by politicians.

Few providers have publicly come out in support of the idea, although enhanced annuity provider Just Retirement is in favour of reform.

Director Stephen Lowe says: “We are supportive of the idea to explore how a secondary market could be created to help those people who want to reconfigure their existing retirement benefits. Clearly the Government and regulators would need to make changes to ensure the necessary conditions are established to enable a market to be lawfully created.”

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Comments

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

  1. I cannot see this being as simple as Mr Webb would like to think. If you bought an annuity with £100k pension fund in good health with spouse/civil partner benefit at age 65 and received a rate of say 5.75% from a provider and 3 years later you want your cash sum back, surely the provider is going to look at your current state of health very closely. What if your health has deteriorated, perhaps not even by very much or if your spouse/civil partner has died. The annuity provider may come back and offer you £50k. Cue headlines about the rip-off pension industry. So who will have the definitive right to value the pension – surely the provider who took on the annuity risk in the first place. Can it be challenged – if so by whom.

    Sorry but best to leave existing annuitants out of these reforms.

  2. What’s the real difference between traded annuities and life settlements? If the latter product is toxic, according to the regulators, surely the same tag should apply to traded annuities,
    It’s just another example of our esteemed politicians making stupid promises, hoping to win votes.

  3. @Richard
    Life settlements were labelled as toxic in the context of being sold as investments to retail clients. I would imagine that traded annuities would be the same as you suggest but that doesn’t stop institutions trading them if they see a commercial value.

    I think the the main issue has been articulated before, namely, that the value obtained from trading your annuity is likely to be low or worse because the commercial enterprise purchasing it will be looking for some certainty in making a buck or two.

  4. @ Grey Area
    I take your point. The snag is, how long before traded annuities are wrapped up in some way and marketed to the public? I’m not saying that this would be an outcome, but if history is anything to go by, it’s certainly a possibility.

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