Secondary Annuity  

Secondary annuity u-turn hits providers in the pocket

Secondary annuity u-turn hits providers in the pocket

Providers will today be counting the cost of the government's u-turn on secondary annuities, according to Douglas Anderson, partner at actuarial firm Hymans Robertson. 

Mr Anderson said while the government's decision to pull the plug on the secondary annuity market just six months before it was supposed to go live was good news for consumers as "getting value for money from cashing in annuities would have been a tall order" today providers are counting the cost.

He said the insurance industry which could not afford to assume a u-turn was a possibility so were busy designing new processes to cater for annuitants considering selling their annuity. 

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Others have been taking greater steps to prepare, he added, and will now have to be adjusting their expectations for what will be boosting their bottom lines next year. 

For example, Mr Anderson said some manufacturers and distributors of enhanced annuities were hoping to repurpose their health based underwriting models to assist with pricing. 

Others were hoping to buy second hand annuities to hold as an asset against new annuities being sold, he said.



 



Mr Anderson said: "On balance though this news should be welcomed. Creating an open, secondary market for selling on annuities would have been no small undertaking and the risk to consumers, and by default insurers, would have been high.”

Martin Tilley, director of technical services at Dentons Pension Management, agreed some organisations will have spent resource time and money in trying to make this work and this money will have been wasted. 

He said advisers may have also advised individuals to put decisions on hold pending the creation of the market, which might also have resulted in bad consumer outcomes.



 



Mr Tilley said: "A key message to be learnt from this is that proposed changes and even kite flying of ideas on major changes of policies like this should not be released to the public without a prior closed door consultation with expert bodies who could have identified barriers to implementation so that consumers do not have false expectations of what may or may not happen."

In a statement issued yesterday (18 October), Simon Kirby, economic secretary to HM Treasury, said the government had pulled its plans because the "consumer protections required could undermine the market's development".

He said: "Allowing consumers to sell on their annuity income was always dependent on balancing the creation of an effective market with making sure consumers are properly protected.

"It has become clear we cannot guarantee consumers will get good value for money in a market that is likely to be small and limited."

emma.hughes@ft.com