Secondary annuity market to launch in April 2017

Economic Secretary to the Treasury Harriett Baldwin has confirmed that more than five million people will be able to sell their annuity from 6 April 2017.

Related topics:  Retirement
Rozi Jones
15th December 2015
Government, parliamant, treasury, commons, downing,

Under the new changes retirees will be able to take the annuity as a lump sum, or place it into drawdown to use the proceeds more gradually.

Additionally, all UK-based annuity purchasers and intermediaries must be regulated by the FCA, and individuals will be required to seek independent financial advice for annuities worth above a certain threshold.

The FCA will put in place a consumer protection framework which could include consulting on a range of extra consumer protections, such as risk warnings and ways for consumers to understand the fair value of their annuities.

The Pension Wise service will also be extended to cover the secondary annuity market.

Harriett Baldwin said:

"For most people, sticking with an annuity is the right thing to do. But there will be some who would welcome being able to draw on that money as they choose - the same freedom we gave people approaching retirement in April this year.

"That’s why I’m delighted that we’re extending our landmark pension freedoms to over five million people with annuities from April 2017.

"People who’ve worked hard and saved hard all their lives should be trusted to make the right decision for them and with the help of the regulator we will ensure these people have the right information to do that."

Minister for Pensions, Baroness Altmann, said:

"The new pension freedom reforms are crucial in allowing people to make the most of their hard-earned savings.

"Keeping an annuity will still be the right decision for the majority of people. But some were forced to buy annuities in the past that may not have been suitable for them – and I am delighted that this reform will allow more people greater choice and the opportunity of a more flexible income stream.

"For the vast majority of customers, selling an annuity will not be the best decision. However, individuals may want to sell an annuity for instance to provide a lump sum for relatives or dependants; in response to a change in circumstances; or to purchase a more flexible pension income product instead."

Tom McPhail, Head of Retirement Policy at Hargreaves Lansdown, commented:

“This is welcome confirmation of a widely expected announcement, which will now give millions more pension investors greater flexibility over their retirement income. Selling a guaranteed income will not be right for many people. Access to market competition to secure the best price and suitable information, guidance and advice should help to ensure that ordinary investors are protected and can make the best possible use of their money.”

Andrew Tully, pensions technical director, Retirement Advantage, said:

"Around five million people will be able to trade their future annuity income for a cash lump sum from April 2017. On the face of it this sounds like great news, extending the pension freedoms to existing annuity customers is a logical step. But, and this is a big but, people might not receive the sort of cash they expect once you actually do the sums.

"While some people may find the idea attractive, those who have been sold a poor value annuity and then trade it in won’t necessarily get better value.

"It is good to see a compulsory advice safety net being introduced to provide protection and help people from making poor decisions. It remains to be seen if advisers have the appetite to get involved in this business.

"The brokering service will effectively mean everyone will shop around for the best deal. It would be logical to extend this to the primary annuity market."

Yvonne Braun, Director of Long-term Savings Policy at ABI, added:

"Providers support greater flexibility and choice for customers when it comes to their retirement funds and these proposals build on the pension freedoms which companies have worked hard to make a success. However, as the Ministers have pointed out, for most people sticking with an annuity will be the right thing, and selling one should not be done rashly.

“It’s therefore essential we see PensionWise guidance made available to cover this future market, and we support the extension of the requirement that customers get financial advice when the value of their annuity is above a certain level. Getting the framework absolutely right to provide protection to consumers will be crucial if we are not to store up significant problems for the future, and providers and the ABI will continue to work hard with the FCA and Government to achieve this."

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