Secondary Annuity  

Treasury reveals opposition to annuity selling

Treasury reveals opposition to annuity selling

A freedom of information request has revealed overwhelming opposition to the government's scrapped plan to allow people to sell their annuities.

In October, the government announced it would backtrack on its promise to introduce a secondary annuity market, but did not publish industry submissions on the subject.

But on Thursday (24 November) the Treasury published 18 submissions from industry bodies and consumer groups on the secondary annuity market.

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The vast majority expressed a great deal of scepticism about the move, mainly on the grounds that the market would be small and lack competition plus it would pose grave risks to consumers. 

While most did not call on the government to scrap it entirely, the bulk of the submissions highlighted the dangers rather than the benefits of a secondary annuity market. 

The Association of Professional Financial Advisers stated it had seen low appetite from advisers and this posed risks to consumers.

“Given this lack of appetite from advisers, the likelihood of potential scams and consumer detriment and the wider economic and market uncertainty facing the country in the wake of the UK’s vote to leave the European Union, we believe that plans for the secondary annuities market should be put on hold for the time being."

The Association of Consulting Actuaries, meanwhile, said there was "a concern that vulnerable older relatives may be pressurised by their families to cash in their annuity income when they can ill afford such action. It is challenging to see how this can be adequately safeguarded against.”

The Institute and Faculty of Actuaries was highly sceptical, focusing on the danger of people making poor decisions. 

“Although the freedom to decide how and when to use their pension assets might be attractive to some pensioners, giving up a guaranteed income could increase the risk of inadequate income in later retirement.

"This could cause both individual financial hardship and an increased burden on the state benefit system; both of these outcomes could have a detrimental impact on the long-term sustainability of the pensions framework,” the submission read.

The Association of British Insurers argued the reforms could be made to work "in principle" as long an appropriate framework was put in place to allow the market to develop.

"However, there are very considerable challenges in establishing a functioning market, particularly regarding protecting consumers, and many unresolved complex legal, regulatory and prudential questions.

"It is also unclear whether there is sufficient appetite from institutions for the proposed market to develop," the ABI's submission stated.

The Tax Incentivised Savings Association was one of the few respondents that was in favour of the move.

“We believe the instinct to trust people with their own money is a good one and are enthusiastic about working with all interested parties to ensure that the reforms work for customers, the industry and the wider national interest,” it stated.