Talking Head: The Society of Pension Professionals' Duncan Buchanan argues second-hand annuities could lead to a consumer backlash further down the line.
Despite misgivings within the Society of Pension Professionals elsewhere, it now seems clear the new government will proceed with the proposals swiftly, once the responses to the consultation have been digested.
The pensions industry will need to adapt quickly to this new policy or will once again face complaints from consumers and politicians.
Dissatisfaction has already been expressed in the press about the freedom and choice changes not being available to all, and that providers are to blame.
There is a risk that some people will sell their annuities, spend the money and then cannot survive on their state pensions. Who will get the blame then?
These complaints – in one instance suggesting a similarity with the PPI misselling scandal – damage the public’s perception of our industry, however unfair that might be.
Annuities have a major public image crisis and current rates, based on low gilt yields, do not look overly attractive. At the same time, surveys suggest people want certainty of income in retirement, which you can only get via annuities that pool longevity and investment risks among all policyholders.
Consumer protection
The freedom and choice changes, together with the ability to sell annuities, mean that as a society we will quickly move away from our traditional pensions culture where retirees have to be provided with an income for life, towards a savings culture where, from age 55, funds can be freely accessed for any purpose.
Of particular concern with a secondary annuity market is the need to protect the consumer by ensuring those who are able to buy annuities are regulated and subject to the ‘treating customers fairly’ rules. It also makes sense for the issuer to be able to buy back their annuities as it may well pay a higher price.
Importantly, those who have already bought annuities may well also be in receipt of their state pension under the existing system and will not qualify for the new single-tier state pension.
For some, their annuities may also represent contracted-out rights that were designed to replace the earnings-related part of their state pension.
There is a risk some people will sell their annuities, spend the money and then be unable to survive on their state pensions.
Who will get the blame then?
We are living in interesting times, and while the new freedoms are popular they will not suit all. However, by the time they find this out it could be too late.
Duncan Buchanan is president of the Society of Pension Professionals and a partner at Hogan Lovells
