Pensions  

Industry cautious over viability of annuity sales market

Industry cautious over viability of annuity sales market

The pensions industry has expressed scepticism about the workability of a secondary annuity market.

A consultation into the proposal, which would allow people who already have annuities to sell their income for a lump sum, ended earlier this month.

But some participants in the pensions industry have raised concerns about whether the policy, which could come into effect as early as April 2016, would be practical.

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Graham Vidler, director of external affairs at the National Association of Pension Funds, said: “The idea of creating a secondary market in annuities has obvious appeal, but what’s far less obvious is how to create this market in any comprehensive way, without it being unbalanced or overly expensive.

“The government has a knotty problem to unpick if it wishes to create the full market it originally set out for savers and ensure it consistently provides value for money.

“That said, we can see pockets of value for both seller and buyer, especially in the smaller annuity section of the market.”

Mr Vidler also said buyers would be wary of adverse selection and compensate either through pricing ‘short longevity’ into all contracts or by individually underwriting each transaction, both of which would increase costs.

As part of the proposal, the government is considering whether financial advice should be required to go ahead with an annuity sale.

This element raised concerns for Apfa, which told the government that advisers would need guidance on what constitutes a suitable reason for selling an annuity.

In its response the trade body said: “The continuing regulatory uncertainty on adviser liability both generally and around the new pension freedoms has meant many advisers are unwilling to engage in the DB to DC pension transfers.”

Steven Cameron, regulatory strategy director at Aegon UK, said the proposal is a “logical extension” of the pension reforms so far, but he also expressed concerns.

He said: “One of the fundamental challenges facing policymakers is that it will be difficult for people to assess whether the lump sum they are being offered is a fair swap in return for the guaranteed lifelong regular income they are giving up.”

John Perks, managing director of LV= Retirement Solutions, said: “Given the potential detrimental risks involved for consumers, we fully advocate that consumers are obliged to take advice before making a decision as to whether they proceed.”

A Treasury spokesman said: “The consultation has now closed. We will now consider the responses and respond in due course.”

Adviser view

David Crozier, director of County Down-based Navigator Financial Planning, said: “I think the secondary annuity market is a recipe for chaos, and clients are going to be disappointed with the lump sums they get.”

Email: damian.fantato@ft.com