So, if the lid on Pandoras’ pension box is thrown open for good with the extension to past annuitants through a secondary market, what are the likely outcomes?
First, there is the question around the long-term goals. Freedom and flexibility to manage your money in retirement should be encouraged, but there are concerns it could result in more people relying on state benefits if personal financial decisions go sour.
This would be ironic given the effort behind auto-enrolment, which was designed to achieve the opposite effect.
Second, the proposal to allow current annuitants to cash in their annuity will see the rise of a secondary market. Institutions will be interested in buying annuities in-force from consumers as long-term income, but only at the right price. There is little doubt it will be a buyers’ market.
Third and perhaps most important, will be the need for advice, or at least guidance.
Five million annuitants will need to think about some very complex issues including their health as they age, their tax situation, any benefits they are eligible for and, above all, their personal priorities.
Many will need external, professional help to ensure they make the best choices for their individual circumstances
So, all in all, are the additional freedoms a positive development?
The US has had a significant secondary market for life insurance policies for many years, covering traditional life settlements and viatical settlements for policyholders with critical/chronic illness.
Life expectancy providers have emerged as a result to help calculate the complex pricing by combining actuarial and medical underwriting expertise, and there may be parallels the UK could draw on here.
Another point of comparison is around regulation, which has evolved in the US to protect all the players involved, with consumers at the top of the list.
However, it is fair to say that the jury is still out as to whether or not the secondary market will be a force for good in the UK, and it is likely to take many years to fully understand the consequences.
2016 will be a fixed turning point, and it is now up to advisers to navigate the challenges and turn them into opportunities, with consumer protection and conduct regulation always front of mind.
Malcolm Kerr, executive director for Ernst & Young’s financial services division