The Financial Conduct Authority and HM Revenue & Customs have both launched consultations to shed further light on how the secondary annuity market could work, but questions were raised about the projected level of take-up.
HMRC this week published a consultation entitled 'Creating a secondary annuity market: tax framework', which estimated around 300,000 people – 6 per cent of the 5m who receive an income from an annuity – would choose to sell their annuity.
There are still glaring gaps in how we’ll make this market work
Steven Cameron, Aegon
The consultation was followed by another from the FCA one day later, entitled 'Secondary annuity market – proposed rules and guidance', which explored the consumer protections and transparency required for the market to function properly.
Take-up estimate
Tom McPhail, head of pensions research at investment platform provider Hargreaves Lansdown, queried the Treasury’s take-up figure, saying it had “an element of back of envelope”. Research done by Hargreaves indicated take-up could be considerably higher.
“We did a bit of research of a few hundred existing clients; 47 per cent of them said the idea of selling their annuity might be appealing or very appealing, but that’s before showing any of the charges.”
The FCA consultation proposes a requirement for potential buyers to disclose all the costs and charges it may levy on the seller of the annuity, as well as detail of any commission. McPhail said this could blunt demand.
“There’s a lot of latent demand, but whether that will survive contact with the [market] remains to be seen,” he said.
Steven Cameron, head of regulatory strategy at provider Aegon, said take-up would rely heavily on the line taken by the media in reporting on the formation and launch of the market.
“It’s not so long ago that annuities were being criticised in the consumer press. If that were to happen again and people decide, ‘We’d like to cash in', [take-up] would be much higher.”
More detail needed
Cameron said there were two areas not covered in either consultation that would help the market to function well: a “central point” where potential sellers could give details of their annuity and health to allow them to receive offers from buyers, and somewhere sellers could go to get medically underwritten.
“People will have to go [and] approach a range of buyers. If they don’t they might not get the best deal,” he said, adding: “I’m not blaming the FCA, but it’s a disappointment there are still glaring gaps in how we’ll make this market work.”
A central “death register” would also be needed, Cameron said, to ensure annuity providers were made aware when people died and so could stop paying instalments.
Adrian Walker, retirement planning expert at wealth manager Old Mutual Wealth, agreed. “The fundamental answer to how a provider will know to stop paying the annuity to the new owner when the original owner passes away is still missing,” he said.
“Who is responsible for keeping track? In the case of those who purchased joint life annuities, the second annuitant may not even recollect they had an annuity if it was sold during the first annuitant’s lifetime.”
