Government pulls the plug on the secondary annuity market
The Government has announced this afternoon that it will not proceed with plans to introduce a secondary annuity market
Tom McPhail, Head of retirement policy:
"This will no doubt come as a disappointment to some annuity holders who were looking forward to restructuring their retirement income, however it is the right decision. After extensive research, at the beginning of September Hargreaves Lansdown, the UK’s largest annuity broker announced that it would not be participating in the secondary annuity market. Our reasons for this decision were very similar to the government’s. The risks to the vast majority of annuity holders outweigh the benefits for the small minority who could benefit."
"This is also perhaps an interesting political change of direction. The pension freedoms were George Osborne’s baby. The secondary annuity market concept was enthusiastically supported by the two most recent pensions ministers. The fact that it has now been dropped could be indicative of a new government which is progressively shedding the legacy policies of the Cameron/Osborne era and is increasingly pursuing its own agenda."
These are some of the risks which Hargreaves Lansdown had previously identified:
- Longevity risk: if they are fortunate to live a long time, without a guaranteed income there is an increased risk of running out of money. Many investors underestimate how long they will live for.
- Value for money: Investors may find it difficult to accurately assess the value of the income they are giving up. This could cause them to accept a low lump sum in exchange.
- Costs: Many secondary annuity sales are likely to be for small sums. The additional administrative costs involved in the transaction could eat up a substantial portion of the value.
- Choice: Investors will not be offered the option of a partial sale. This means they have a binary choice: either a full sale or none at all. This limits their scope to hedge their risks.
- Vulnerable investors: Vulnerable investors in challenging circumstances due to financial pressures, poor health or low financial capability are at particular risk in the secondary annuity market.
- Fraud: There is a risk of financial fraud or scams targeted at investors with annuities, who could be persuaded to exchange them for a lump sum.
NOTES TO EDITORS
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