PensionsMar 19 2015

IFS Budget report scathing of annuity re-sale plans

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IFS Budget report scathing of annuity re-sale plans

Further doubts about the government’s proposed annuity re-sale plans have been cast in a new report on the Budget published today (19 March) by the Institute for Fiscal Studies.

The document, written by senior research economist Stuart Adam, noted that while the flexibility will be welcomed by some, adverse selection means that the secondary market in annuities might be limited or struggle to emerge at all.

“If many of those looking to sell an annuity are those who have good reasons to believe they might die soon, and those buying the annuity cannot reflect this in the price, then prices on offer will assume that those looking to sell their annuity will be likely to die soon, and these prices will be unattractive to most, especially women.”

Mr Adam stated that some people might make bad decisions and therefore it is important to get the advice and guidance right. He also pointed out that oldest individuals might be least well placed to make these complex financial decisions.

Earlier today, advisers revealed that they had already received calls from consumers about getting out of their existing contracts, but many in the industry warned of various obstacles detailed in the government’s consultation paper.

The paper stated that independent financial advice would likely need to be sought before the selling of an annuity on the open market, while the trading itself may hit the stumbling blocks of not having enough available buyers or industry-wide mechanisms for properly pricing the contracts.

The penalty for selling annuity income to a relevant institution is currently set to be removed from April 2016. Instead, Mr Adam explained, income tax is to be charged at the seller’s marginal rate when they draw on the sale receipt.

Across 2013, six million annuities paid out a total of £13.3bn to an estimated five million individuals in 2013.

ruth.gillbe@ft.com