Pensioners who want to sell their annuities on the secondary market could struggle to find an adviser willing to advise them on the transaction, Aegon’s regulatory strategy director has warned.
Steven Cameron told FTAdviser that advising clients to cash in an annuity for what will, in many cases, be an inferior sum, could carry professional indemnity risks as serious as those affecting defined benefit pension transfers.
But to make matters worse for the government’s initiative, it is questionable whether even DB transfer specialists will be willing to provide advice.
Intelligent Pensions, one the leading final salary transfer advice firms, said the secondary annuity market was considerably less attractive than the DB transfer market, because there was less scope to continue to manage the client’s money.
While Mr Cameron was careful to stress that some people would benefit from selling their annuity, he said for most people it would “not be a good idea”, adding: “One of the concerns is that there won’t be many advisers to advise in this market.”
As with a DB transfer, he said advising someone to sell an annuity amounted to suggesting someone give up a guaranteed income for life, replacing it with “something more flexible, but also much riskier”, leaving the door open to accusations of mis-selling and professional indemnity lawsuits.
“So we think those same advisers who have avoided advising on DB to DC transfers may equally want to avoid advising on people selling their annuities on the secondary annuity market,” Mr Cameron said.
He added that by the time the secondary annuity market is launched in April 2017, Aegon will be out of the annuity business altogether, having sold its entire annuity book to Rothesay Life and Legal & General, for £6bn and £3bn respectively.
HM Treasury has said people wishing to cash in their annuity will have to enlist a financial adviser if the value is over a certain level, though it has not yet said what that level will be. The threshold for DB transfers is £30,000.
Intelligent Pensions marketing director Andrew Pennie agreed most advisers would view the sale of annuities as a “risky” business.
“I think it will be similar [to DB transfers], but it depends if the same protections are put in place. I can see a lot of advisers not wanting to get involved,” he said.
But while advisers can outsource DB transfers to specialists like Intelligent Pensions, Mr Pennie said this may not be so easy for final salary transfers.
He said the attraction of DB transfers is “there can be a life in it after the transfer” - that is, they transfer it into a drawdown account, meaning ongoing business for the adviser. However, in most cases, people selling annuities would be doing so for a one off payment, such as paying off a debt, rather than to purchase a drawdown product.
“I struggle to see why people would sell a retirement income to replace it with one that is likely to be worth less,” he said.
But Mr Pennie did not close the door to Intelligent Pensions offering advice on annuity sales.
“As pension and retirement specialists, we will potentially be involved if we think it is commercially viable,” he stated, adding it was “not an area we get overly excited about”.
The Financial Conduct Authority is currently consulting the industry on how to regulate the secondary annuity market. It will close to submissions on 17 June.
james.fernyhough@ft.com
