I am writing on behalf of the Association of Consulting Actuaries (ACA) to respond to the consultation on Creating a secondary annuity market.
We set out our comments in detail in the Appendix to this letter, but include below some general observations as follows:
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Consumer protection: In general, while there may be some benefit to annuitants and demand from institutional investors for such assets, there are a number of substantial risks to consumers and sellers (and ultimately the industry) of introducing a secondary annuity market without robust safeguards and sufficient lead-in time to get this right. There is a concern that vulnerable older relatives may be pressurised by their families to cash in their annuity income when they can ill afford such action. It is challenging to see how this can be adequately safeguarded against.
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The precise definition of ‘annuities in the name of the annuity holder and held outside an occupational pension scheme’: The easiest approach to defining whether the facility is available would be to look at whether the annuity is currently held in the member’s name outside an occupational scheme – regardless of where it started out. But this will include buy-out annuities (or buy-in annuities assigned to members) covering defined benefits. HMRC need to be clear that this is their intention (and be aware that this will expand the scope considerably).
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Whether this should be extended to annuities purchased from 6 April 2015 (and indeed into the future): Arguably this should not be necessary in the Money Purchase arena – but may help to prevent further reduction in the annuity market due to the flexibilities. And depending on the conclusion in 1, it may expand the scope of the facility by allowing new buy-out exercises such that members can then access the flexibilities
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And in connection with recent developments on the post-April flexibilities (providers not being willing to offer full flexibility, and possibly intervention by the Government to ensure that providers do offer the flexibilities): there may be concerns that although the secondary annuity market is intended to be voluntary, there could be similar enforcement if annuity providers refuse to allow assignment.
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