Annuity resales could lead to bad value – Parkin

Annuity resales could lead to bad value – Parkin

Richard Parkin, head of retirement for Fidelity Worldwide Investment, has poured cold water on the idea of a secondary annuity market, claiming it would represent poor value for sellers.

The government has argued that people locked into the old system by previously buying an annuity should be able to sell the income.

On 18 March 2015, the Treasury and the department for work and pensions issued a 35-page document, Creating a Secondary Annuity Market, calling for evidence on the subject.

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The document said: “In this government’s view, there is no reason to prevent retirees who have already purchased an annuity from selling their right to future income streams for an upfront cash sum if it is right for them.”

At a seminar, Managing Income in Retirement, Mr Parkin claimed that a secondary market – which he suspects will not materialise – could be a bad deal for sellers.

He said: “In any market where there is an excess of sellers and not many buyers, you will find the value is not great.

“We think there is going to be an imbalance in the market. It is a bit like defined benefit transfers – the bankers always win.”

He warned that annuity resales could be blighted by complexity but said that people in dire financial straits would not mind a low price for their annuity.

He predicted the idea could be “kicked into the long grass”.

In March, Joanne Segars, chief executive of NAPF, claimed that a full consultation on the concept was needed.

She said: “The consultation would need to look at how the buyback price of an annuity would be calculated so people selling their annuity could be assured of good value, and also consider a prescribed process for introducing buyers and sellers to avoid excess costs, which would inevitably be carried by the consumer.”

Adviser view

Matt Raine, one of the directors of Leicestershire-based TM Asset Management, said: “More people will be looking to sell annuities than there will be buyers, but I am optimistic that the plans for a secondary annuity market will go ahead. There is a need for it.”

Creating a Secondary Annuity Market: Key points

* The most recent figures on annuities from 2013 suggest there are 6m annuities in payment, paying out approximately £13.3bn a year.

* Given that some people will hold more than one annuity, it is estimated that up to 5m individuals are in receipt of these payments.

* Annuity holder demand to assign their income to a firm will be highly dependent on the price they can obtain.

* Depending on how the market develops, many institutional investors may only want to purchase in bulk and there may therefore be a need for intermediaries to enter the market in order to purchase individual annuities, repackage them, and sell them on to the end investor.