Another provider has warned that plans afoot to allow people to sell their annuities are likely to create more downside risk than upside gain for the majority of savers, despite the pension minister saying advice is critical to annuity re-sale plans.
Last weekend, pensions minister Steve Webb told the Telegraph that he wanted the law to be changed which would enable these pensioners to re-sell their annuities.
This would create a “second hand” pension market, with insurance firms and others buying up these annuities and selling them in bulk.
His plan is that this would only apply to the estimated 5m pensioners who have already retired, so will not be able to benefit from the new pension reforms, that are set to be implemented in April, as they are already locked into an annuity.
Mr Webb said details were being drawn up by the Department for Work and Pensions and that he was seeking cross-party agreement that proposals would be implemented by the next government.
Mr Webb later told FTAdviser that “advice or guidance” must be made available to these savers, in what some may see as a reference to potentially extending the existing pension freedoms free guidance provision.
Hargreaves Lansdown warned the plans were unworkable, a position that AJ Bell agrees with.
Gareth James, AJ Bell technical resources manager, cited two reasons that there is a “big risk” savers will get a “poor deal” if they decide to take their money and run despite the advice admission.
He said: “First, the cash lump sums offered may not be good value once the buyer of the annuity prices in the risks involved and their need to make a profit.
“Second, the extra freedom increases the danger people are misled by fraudsters and use the money to make unsuitable investments which provide a worse outcome than the annuity.
“Pension providers’ control systems are designed to reduce this danger but once funds are withdrawn this protection is removed.”
Mr James also reiterated concerns raised by Fidelity Worldwide Investment’s retirement director Alan Higham, that healthy individuals are likely to opt to keep their annuities, whereas those in poorer health will choose to cash out.
“A first step, to test the proposal, could therefore be the setting of a cash threshold which permits the sale of lower-value annuities. If this provides more good outcomes than bad for savers then the option to sell could be made available to all annuity holders.”
Mr Higham had said that only the healthy, who would benefit the most from owning an annuity, would have a chance of selling one.
Jim Boyd, director of corporate affairs for Partnership, said in order for a fair price to be had, a “mature market” must be in place and that volume would be needed in terms of purchasers and sellers.
donia.o’loughlin@ft.com
