Pensions minister Baroness Ros Altmann has revealed the government is thinking about some kind of “platform exchange” where people can bid for annuities.
Speaking to FTAdviser, she said how a platform exchange would operate would not be worked out in detail until the legislation for a secondary annuity market is in place.
Baroness Altmann said one possible model would be a central platform where anyone can put a bid in, which could be accessed an intermediary that would look at the bids and decide which is the best for the individual.
She said: “You could leave it to individual financial advisers to phone round providers like they do now.
“If you have got an IFA and you have got a decent sized pension fund, your IFA would normally help you fill in the questionnaire, so you know what type of annuity you want and then phone round the best providers for the best bid.
“That is the way the market is already working. This is just moving it onto a secondary market as well. There does need to be some way in which individuals can find out what a fair price is.”
In December, the Treasury announced that its free guidance service Pension Wise would be extended to those participating in the secondary annuity market, which is due to be implemented in April 2017.
The government also recently tabled an amendment for mandatory advice for those with higher value annuities through the Bank of England and Financial Services Bill.
This will compel the Financial Conduct Authority to make rules requiring certain authorised entities to check that holders of a relevant annuity have received appropriate financial advice before they may sell their annuity.
“It is an exciting market, but it may be a niche market.”Baroness Altmann said: “Training Pension Wise staff on the issues specific to secondary annuities is a logical next step and we will consider who funds that. We haven’t obviously decided whether it happens. It will all be consulted on.
“It is an exciting market, but it may be a niche market. It may be that not that many people want to sell their annuities, but I think its absolutely right to offer people the chance.”
She was keen to point out that the finer details are still under consultation, adding that the delay to the secondary market’s start date was “absolutely right” in order to ensure good consumer protection is in place.
As part of the Summer Budget, chancellor George Osborne delayed the launch of a secondary annuity market by a year, meaning people will now not be able to sell their annuity for a lump sum until 2017.
Tom McPhail, head of retirement policy at Hargreaves Lansdown, said that for a secondary annuity market to work, there needs to be three participants in the transaction: the existing annuity holder, the potential purchaser and a broker to bring the first two together.
However, at present, there is little evidence of the supply side coming to meet the demand. He commented: “We have spoken to insurers and potential providers of capital and they are not coming out to play.
“The only people they will be able to sell their annuities to is back to the insurance companies. If no one else is bidding on the income stream then that’s not good. Finding other participants to come into the market place is critical to making it work.”
ruth.gillbe@ft.com
