Fire sale forecast for annuity re-sales as plan branded 'doomed'

The whole plan for the secondary annuity market is ‘doomed’, unless a fundamental problem can be addressed, a pensions expert says. After HMRC and the FCA released more details of the reforms this week, there were also forecasts of an initial “fire sale”.Jon Greer, pensions technical expert at Old Mutual Wealth, said a critical question had to be overcome still.He said: “From a purely practical point of view, this whole plan is doomed unless the Government finds a solution to a fundamental point.“There is nothing in the document released today that deals with the death of the original annuity holder and how the insurer will ever know.“This is key as the insurer will need to know how long to pay the annuity for where it has been assigned/bought. This situation is exacerbated if the annuity has dependants pension too.“How will the insurer know if the beneficiary has died, and who is responsible for keeping track? Even if a solution is found this will be a real headache for insurers to administer.”AJ Bell chief executive Andy Bell said: “We expect to see a fire sale initially as customers rush to trade in their existing annuities because they feel they are getting poor value but had no alternative when they purchased them. This is backed up by HMRC figures that show a positive impact for the exchequer in the first two years but a negative impact in years three and four.“However, pension freedoms have given people more options, so it’s far less likely someone will purchase an annuity that they don’t want today. It’s therefore hard to see how a sustainable, long-term secondary annuity market will function, given that we don’t know who the buyers will be or the composition of the sellers."Claire Trott, head of pensions technical at Talbot and Muir said: “The biggest issue with the second hand annuity market will be establishing a market for something that will really only be viable short term. It is designed to give access to flexible benefits to those have already bought an annuity or deferred annuity.“This could mean that investing time and effort in processes for what is estimated to be around 300,000 cases may not be worthwhile. If the market is established it is key that the annuitants take advice or we would again be seeing poor outcomes somewhere down the line. To this end is it good to see that there is scope for advisers to be paid from the proceeds of the annuity.”Steven Cameron, pensions director at Aegon, said: “As the Government has highlighted, this won’t be the right choice for most. Selling an annuity comes with risks of consumers making choices they may later regret.“It means giving up a guaranteed income for the rest of their life, which in some cases would have continued to their spouse. While a lump sum to spend today may be tempting, it’s important to think about whether you are relying on your annuity income to have a decent standard of living for the rest of your and your spouse’s retirement.”

Fire sale forecast for annuity re-sales as plan branded 'doomed'

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