Creating a Secondary Annuity Market - NAPF Response
In March 2015 HM Treasury and the Department for Work and Pensions issued a .
The NAPF supported the previous Government’s proposals for greater freedom and choice in how people access their money at retirement. We feel they have the ability to increase the attractiveness of retirement saving and give individuals greater flexibility to tailor their retirement savings to their needs. The proposals to create a secondary annuity market by changing the tax treatment of assigned annuities can be seen as an extension of these freedoms. However, these proposals do mark a critical shift, with existing beneficiaries of a retirement income now being allowed access to the pension freedoms.
In our response to the consultation in June 2015 the NAPF expressed concern that key structural issues would make it extremely challenging for a fair and balanced market to develop, in particular the number of sellers (today’s annuitants) was uncertain and likely to be time limited, buyers would need to be wary of adverse selection and would compensate, either through pricing short longevity into all contracts or through individually underwriting which would reduce the value to sellers.
In our response the NAPF made the following recommendations if the Government was going to proceed with the proposals:
- Any individual wishing to assign their annuity to a third party must take independent financial advice if the value of their annuity is greater than £10k;
- The FCA needs to consider as a matter of urgency the qualifications IFAs would require to give such advice, in particular the ability to assess whether the individual is receiving a fair price for their annuity;
- The FCA should review its disclosure and conduct of business rules to ensure to that ‘sellers’ are informed of their rights to purchase a drawdown product with another provider; and
- Individuals who assign their annuity in order to access the cash more flexibly should be subject to the £10k AA. However, the Government to consult fully on the details of any new disclosure requirements.”