The Association of British Insurers has urged the government not to rush plans to create a secondary market for the annuities.
The Treasury’s consultation into suggestions made during the last government’s tenure finished last week, with various stakeholders calling for better consumer protections to be put in place and concerns about unintended consequences.
The ABI’s submission stated that the implementation must not be rushed, given the considerable challenges in establishing a functioning market and ensuring adequate protection for consumers, especially access to advice and guidance.
It argued that clarity is needed around how the rights of dependents and beneficiaries will be protected, particularly as many of them will be older people who may be vulnerable due to illnesses and reduced mental capacity.
It also raised the spectre of scams and fraud, pointed out that the exact scope of the proposals must be well defined and added that providers should not be obliged to buy annuities back.
Yvonne Braun, director of long term savings strategy at the industry body, commented that there are considerable challenges in establishing a functioning market, with many unresolved complex legal, regulatory and prudential questions.
“We want to work with government to help resolve these issues, but given the lessons learned from the ‘freedom and choice’ reforms and the need for clarity in many areas, we urge the government not to rush these proposals through for 2016.
“Allowing more time will ensure an appropriate regulatory regime can be developed to give this new market a chance to succeed.”
Earlier this week a YouGov survey commissioned by the Institute and Faculty of Actuaries in June - among 1,531 adults over 55, of which 348 had an annuity which they were currently receiving payments from - found that 48 per cent value the certainty their annuity gives them while 40 per cent believe there is a high risk they could end up worse off by cashing it in.
Gareth Connolly, chair of the IFOA pensions board, said that although the freedom is attractive to some pensioners, giving up a guaranteed income could increase the risk of running out of money later in retirement, especially given that individuals may underestimate how long they will live.
“It remains to be seen how much demand there will be in practice for buying secondary annuities once the market has developed, and whether they will be good value for pensioners.
“Access to adequate financial advice will be vital for pensioners in understanding the pros and cons, and the inherent risks, relating to the new option they will have available,” he noted, adding that many annuitants will likely be amongst the most vulnerable in society.
“It is therefore crucial that the implications of choices are fully understood and that consumer safeguards are in place to reduce the risk of mis-selling.”
peter.walker@ft.com
