Pensions - Articles - Comment - Secondary annuity market to launch in April 2017

 Simon Laight a pensions expert at international law firm Pinsent Masons commented:

 “The big issue on the buy side of the market, is prudential regulation. For an annuity issuer, buying matching second hand annuities only works if for capital reserving purposes they are allowed to match those assets (the second hand annuities) with their own annuity obligations. Under current rules, that is far from clear. Unless that can be clarified, the annuity companies won't enter the market and the market won't get off the ground.

  

 “In a U turn, the treasury is to allow annuity providers to buy out their own annuity promises. That is music to their ears, especially for closed book providers who have huge books of small annuities. Each time an annuity is bought back, that releases an amount of capital within the insurer's reserves. Multiply that across the whole book and buy back becomes a handy capital releasing tool. It enhances shareholder value. This measure alone is likely to drive further corporate activity amongst the closed book providers.

  

 “Savers can only cash in their entire annuity under the proposals, they will not be allowed to assign chunks of their guaranteed income. This is another consumer protection measure – complexity creates risk and additional costs. However, for the higher value pots, the practice will develop of buying the initial annuity in slices, allowing for subsequent cashing-in to be carried out in chunks.

  

 “The ability to sell applies only to pension annuities belonging to an individual and held in their own name. Many pension annuities have been purchased by trustees of occupation pension schemes, for the benefit of the respective scheme members. This seems to have been overlooked by the Treasury. It means that many consumers may be denied the right to sell their annuities.”