On 15 March 2015 the Chancellor, George Osborne, announced to Parliament that more than 5m people with existing annuities would be able to sell them from 6 April 2017, if they wished. Ever since there has been widespread speculation about the viability of what has become known as the ‘second-hand annuity market’. This article covers market viability, including pros and cons for the key market participants.
For the second-hand annuity market to be viable, a number of participants are essential:
• At least one organisation must be willing to buy second-hand annuities. This could be an insurance company, pension scheme or other investor. The requirement is that it has to be FCA-regulated.
• There needs to be a number of consumers with existing annuities who would like to sell their annuity for the offered price.
It should be noted that the Treasury website states that individuals are only required to “seek independent financial advice for annuities worth above a certain threshold”. We do not know what the threshold is yet, but it is likely to be pretty low, and so the participation of intermediaries would certainly expand the potential market.
We have two more participants that would greatly help the viability of the market:
• There needs to be a ‘market place’ where buyers would bid for policies (for example, an online comparison site).
• At least one FCA-regulated intermediary needs to be willing to search the market place, and advise and carry out the transaction on behalf of their client.
Let us have a look at each of these required market participants to assess the likelihood of them joining the market to make it viable.
Consumers
As the Chancellor stated: “For the vast majority of people, continuing with their existing annuity will be the right choice.” This is a view that has been strongly reiterated by the Economic Secretary to the Treasury, Harriett Baldwin, and by the Minister of State for Pensions, Baroness Ros Altmann.
However, without doubt there will be demand from some consumers. Some will simply be tempted by the short-term cash over an income for life. Others may have bought an annuity when they were required to have an income of £20,000 a year in order to enter flexible drawdown (a rule which no longer applies) and now wish to sell it.
Anyone who plans to sell their annuity, should consider more than just the price. They need to think about the tax implications, the potential loss of means-tested benefits and whether it will result in their paying more towards any care costs.
