Commenting on Steve Webb’s comments on annuity re-selling, Kate Smith, Regulatory Strategy Manager, Aegon UK says:
“The industry is already under significant pressure to deliver the various legislative changes this year. The latest proposal from Steve Webb generates a long list of issues and risks for the industry and customers.
The first and most obvious of these is the fact that a lifetime annuity is priced on the life and medical conditions of that particular customer. So if it was sold on, the new risks and medical conditions would need to be re-priced in as part of the transaction. This might not turn out to be attractive to either the buyer or seller. While the former annuitant would get cash in hand, they would be losing out on the certainty of a guaranteed income and risk falling back on the State. The assumption appears to be that the new flat rate state pension will be enough to live on but we know that for most it won’t. Further issues include changes to legal contracts, tax implications for both buyer and seller, clarity on how this fits with the Guidance Guarantee as well as system changes providers would need to make to accommodate this approach.”
Who would be the biggest winner?
“Quite clearly the pensions Minister sees this as a big vote winner. Another winner would be the Treasury, as people selling annuities will be taxed at their marginal rate when they receive the cash value of their annuity. This could unknowingly push a lot of people into a higher tax band. If this option becomes ‘real’ it will be absolutely imperative that people get advice so they understand the implications of what they are getting into. We’re certain the FCA would be interested in this new market to ensure any new buyer is regulated to ward off an onset of more pension scams.
Customers must be at the heart of pension reform. Already with the additional freedoms they are gaining this year come certain risks. This proposal would create further risks for customers to consider and with all the change that is in the pipeline they might be overwhelmed and confused.”
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