Hargreaves Lansdown decides not to enter secondary annuity market

Hargreaves Lansdown says it will not be offering a broking service for investors to sell their annuities when the government’s scheme launches next year, citing the 'potential risks to consumers' and expected low demand for suitable transactions.

Related topics:  Retirement
Rozi Jones
6th September 2016
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"Ever since this proposal was first made, we have been concerned that for many investors, it is likely to be a poor decision."

Other issues highlighted by the annuity broker include longevity risks for those without a guaranteed income and the risk of financial fraud or scams targeted at investors with annuities, who could be persuaded to exchange them for a lump sum.

Hargreaves Lansdown believes that vulnerable investors in challenging circumstances due to financial pressures, poor health or low financial capability are "at particular risk in the secondary annuity market".

The firm added that investors may find it difficult to accurately assess the value of the income they are giving up, causing them to accept a low lump sum in exchange.

It also raised concerns that investors will not be offered the option of a partial sale meaning they have a binary choice: either a full sale or none at all, which the firm says limits their scope to hedge their risks.

Finally, it believes that any secondary annuity sales are likely to be for small sums, meaning the additional administrative costs involved in the transaction could eat up a substantial portion of the value.

The FCA has confirmed that annuity holders with income above a certain value (as yet unconfirmed) will have to pay for advice before they can sell their annuity.

Hargreaves Lansdown says its preference would be for the threshold to be defined in terms of the annual income, rather than the capital value.

The broker says it is waiting for confirmation from the Treasury of the threshold for taking advice before deciding whether to offer an advisory service to investors who may be contemplating selling their annuity.

Tom McPhail, head of retirement policy, said: “For a small number of investors, selling an existing annuity income in exchange for a lump sum may make sense. However ever since this proposal was first made, we have been concerned that for many investors, it is likely to be a poor decision. We have therefore made the decision not to enter the secondary annuity market at this time.

“We are reviewing whether Hargreaves Lansdown will offer an advisory service to investors who may be contemplating selling their annuity and who are looking for an advisor to consult on the decision. We will make a further announcement once we have reviewed the full regulatory and operational considerations involved in this market.

“For anyone not paying for advice before selling an annuity, a consultation with Pension Wise should be mandatory. The particular risks in this market are such that an independent sense-check from either a qualified adviser or from Pension Wise is a small inconvenience for the small number of investors who are likely to go ahead with such a transaction.”

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