Hargreaves Lansdown has announced it will not offer a broking service for investors to sell their annuities due to concerns about the potential risk to consumers.
According to the firm, the decision was made after extensive analysis of the market.
Reforms unveiled in December will allow people drawing annuities to sell their contracts from 6 April 2017, extending at-retirement reforms announced in the Budget two years ago.
In June this year, providers, including Hargreaves Lansdown, called for mandatory guidance on the secondary annuity market for consumers coming via the government’s guidance service, Pension Wise.
Hargreaves Lansdown listed a number of risks to investors contemplating selling their existing annuity, which included longevity risk, risks surrounding value for money, costs, choice and fraud.
Tom McPhail, head of retirement policy at Hargreaves Lansdown, said: “Like the government, we are keen to see as many investors as possible taking on both the freedom and the responsibility to manage their own retirement savings.
“For a small number of investors, selling an existing annuity income in exchange for a lump sum may make sense.
“However, ever since this proposal was first made, we have been concerned that for many investors, it is likely to be a poor decision. We have therefore made the decision not to enter the secondary annuity market at this time.”
He said that Hargreaves Lansdown was reviewing whether it would offer an advisory service to investors who may be contemplating selling their annuity and who are looking for an adviser to consult on the decision.
Mr McPhail said: “We will make a further announcement once we have reviewed the full regulatory and operational considerations involved in this market.”
Earlier this month, it came to light that the launch of the secondary annuity market was hanging in the balance as a decision still needed to be made on capital rules by the Prudential Regulation Authority.
A decision surrounding matching adjustment, which will be framed within Solvency II regulations, is one of the cornerstone factors in providers deciding whether to participate in the new secondary annuity market.
Bob Wilson, a financial adviser at Greensky Wealth, said: “My gut feeling is it might be something that is not good value for the person selling the annuity.
“It could turn out as a big mis-selling scandal in the future. We do think some of the big pension funds may end up buying the pension funds, mitigating the risk to them. The key is the regulatory framework. I don’t blame Hargreaves Lansdown for not getting involved at all.”
ruth.gillbe@ft.com
