19th June 2015
The pensions industry has said consumers wishing to sell their annuities should be made to take advice so they understand the full implications of giving up guaranteed income.
The Financial Conduct Authority (FCA) is currently consulting on how a second-hand annuity market would work. The idea, set out by chancellor George Osborne, earlier this year would be to allow retirees who already have annuities to sell them for a lump sum as part of an extension of pension freedom.
There have been some concerns about the idea though, as experts warn that people who were mis-sold poor value annuities could lose out doubly as the annuities were then mis-bought from them.
Johh Perks, managing director of LV= retirement solutions, said that individuals should ‘have the right to sell their annuity to their existing annuity provider should the provider be willing to do so and where the provider can demonstrate that a fair offer has been made’ but said advice was key.
‘We do not believe that it is in the spirit of the reforms to restrict individuals’ freedom and choice as to how they take their retirement income,’ said Perks.
‘Given the potential detrimental risks involved for consumers, we fully advocate that consumers are obliged to take advice before making a decision as to whether they proceed.
‘However, we think the requirement needs to be assessed to avoid the cost of advice damaging the value of smaller annuities.’
Jeffrey Mushens, technical director at the Tax Incentivised Savings Association (Tisa), said the creation of a second-hand annuity market was a ‘natural progression of the pension freedoms’ and the organisation supported it in principle.
‘However, we feel that a statutory override is necessary in order to make the reforms available to as many consumers as possible,’ he said. ‘This approach would prevent these specific reforms from exacerbating the reported consumer frustration of being unable to access the already introduced freedom and choice at retirement, where some schemes have chosen not to allow them,’ he said.
He said without a statutory override, annuities would not be able to be traded in if the provider decided not to participate because the nature of annuities is that they are non-refundable.