A consultation set to be launched next week into the viability of a secondary market to extend pension freedoms to 6m legacy annuitants would have major implications for pension guidance the Treasury is rushing to ready for April, according to Aegon’s regulatory director.
Earlier today FTAdviser sister title the Financial Times cited “Whitehall sources” revealing that a meeting is to take place on the issue tomorrow (13 March) among the “coalition’s most senior figures”.
Pensions minister Steve Webb has previously championed plans to enable 6m legacy annuitants to trade their income stream for cash and take advantage of April’s at-retirement freedoms.
One provider spoken to by FTAdviser who has been involved in talks with the government said a consultation is likely to the launched by the Treasury next week seeking views on regulatory hurdles and ensuring consumer protection.
However, Steven Cameron, Aegon’s regulatory strategy director, pointed out the introduction of a secondary market would fundamentally alter the decision to purchase an annuity, which would no longer be irreversible, making choosing between the new range of options harder.
Mr Cameron said this had particular implications for those dealing with clients and especially Pension Wise, the government guidance provider which will be giving general information to retirees from April.
He said: “If the Budget raises the prospect of a future change here advisers, providers and Pension Wise will need to work out how to reflect this.”
Contributors to an FTAdviser guide on the guidance service published today (12 March) had already raised concerns over how quickly the service has been brought together. Andrew Tully, technical director at MGM Advantage, said a three-year task had been completed in six months.
Mr Cameron added: “Swapping a guaranteed flow of income for a lump sum, calculated based on a range of factors, is undoubtedly a complex and risky decision and specialist advice would be essential.”
Gareth Evans, head of corporate affairs at Royal London, struck a similar note, saying he was “not sure we need another consultation this side of the election” given the radical changes already being implemented.
Mr Evans did indicate, however, that the insurer’s stance had softened since business development director Fiona Tait told FTAdviser during a video interview at the end of January that it would be “unlikely” to participate in the potential market.
He said: “To be honest, I still can’t see how it would operate without considerable consumer detriment - individuals just can’t calculate their own longevity risk and many would be tempted to take a less valuable cash deal.”
Other insurers were more positive, with both Just Retirement and Partnership, specialist annuity firms hit hard by the Budget announcement last year, indicating they would be interested in participating in a secondary market.
Stephen Lowe, group external affairs director at Just Retirement, told FTAdviser that they are in full support of the consultation, which he said would have the positive effect of increasing competition and pushing up annuity rates.
Mr Lowe cautioned certain conditions would have to be put in place to make the plans a reality, including regulatory consumer protections, legislative changes to allow pensions to be re-assigned, technical updates to re-categorise assets, and a new industry protocol to help trace whether policyholders are still alive.
“I think institutions would want to buy these assets, as asset managers and insurers are still searching for bond-like streams of income to match their business models,” he added.
As for the practicalities around the actual purchase of contracts, Mr Lowe said a perfectly functioning system could use blind bidding processes used in other asset purchases.
Steve Groves, chief executive of Partnership, also supported the ideas in principle, adding that they would be well placed to act as a potential buyer of annuity income streams.
“However, the possibility of the introduction of these reforms is distant, as any consultation following the Budget will inevitably take place after the May general election and a potentially different administration.
“The devil is, as always in the detail, and this proposal would inevitably require the development of a mature market and appropriate regulations to safeguard consumers.”
Andrew Tully, pensions technical director at MGM Advantage, said for the plans to work the annuity contracts would likely have to come on a pooled basis, prompting him to ask how they would be packaged to achieve sufficient scale and avoid undue risk that would put off providers.
peter.walker@ft.com
