Adviser fears could derail govt annuity re-sale plans

Adviser fears could derail govt annuity re-sale plans

Advisers are shunning talks to develop an annuity re-sale market over fears of future mis-selling claims, in what could be a fatal blow to government plans to extend pension freedoms.

Reforms unveiled in December will allow people drawing annuities to sell their contracts from 6 April 2017, extending pension changes announced in the Budget two years ago.

More than five million people will be eligible from next April, with millions more to come as the reforms will also be open to those buying an annuity in the future.

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Under current proposals, to sell on annuities worth above an as yet unannounced threshold, retirees will be required to seek independent financial advice.

A number of pension providers are in talks about setting up brokerages.

But Andrew Tully, pensions technical director at Retirement Advantage - one provider in talks to develop ‘annuity bureau’ marketplaces for people to sell on their annuities - said early signs show advisers shunning what they see as a big professional risk.

“We’ve spoken to a bunch and probably the majority of advisers are indicating that they don’t want to get involved,” he said.

The reluctance stemmed from fear of advising people to sell guaranteed incomes in retirement, who may later regret the decision and claim damages, he said.

“It’s a higher risk market - a bit like a defined benefit transfer - where the consumer is giving up a guaranteed income for a lump sum.”

If the government can not persuade advisers to get involved in the second-hand annuity market if will fail a key part of the “comprehensive consumer protection package” announced with the reforms.

It is asking the Financial Conduct Authority to put in place a consumer protection framework which could include risk warnings and ways for consumers to understand the fair value of their annuities.

A consultation paper on the second-hand annuity market is due from the FCA this week.

As advisers shy away from involvement in the changes, product providers are busy stepping into the gap.

Mr Tully confirmed he was talking to a number of different industry players about how to create annuity bureaux with intermediaries.

But so far these would seemingly only act as brokers for individuals looking to auction off their retirement income products, and not advise on the sales.

Aviva is rumoured to also be in talks on the matter, although it would not confirm this.

John Lawson, head of retirement solutions and policy at Aviva, said in the provider-led bureaux see themselves as a “natural home” for the secondary annuity market, “which seems sensible, as they were key players in the primary market; a lot of which was unadvised”.

He suggested provider-backed annuity bureaux would “streamline” the buying, selling and, where above the threshold, the advice process, in a way average adviser firms could not.

“[Annuity bureaux] can cut the costs of doing business, so it is going to have to be an advised process, but if they can do it by telephone in a fairly streamlined process then should cut the costs.