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Aegon welcomes FCA consultation on how to protect vulnerable, often elderly, consumers in the secondary annuity market
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From April 2017, people will have the option of selling or ‘assigning’ future annuity instalments to a third party firm, in return for a cash lump sum or an investment into a flexible drawdown policy
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Following on from the success of the pension freedoms which give individuals complete freedom on how to use their defined contribution pensions from age 55, the Chancellor announced in his 2015 Budget that he would offer similar freedoms to those who had already purchased annuities.
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Aegon welcomes consumer protection measures including transparency
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But highlights number of missing pieces to make this market work effectively for consumers, buyers and the original annuity provider
Steven Cameron, Aegon’s Pensions Director said: “The launch of a secondary annuity market will offer new pension freedoms to those who bought their annuities in the past and would now prefer the flexibility of a cash lump sum or a new drawdown policy.
However, as the Government has highlighted, it won’t be the right choice for most, with the FCA identifying a long list of risks to consider. It’s vital that people have access to professional advice and guidance to make sure they get a fair deal and make an informed decision.
“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 your life, which in some cases would have continued to your 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.
“One of the new challenges is calculating a fair lump sum value for a guaranteed income for life. This will be hugely affected by the individual’s health status and life expectancy. It’s helpful that buyers will be required to give potential sellers an idea of what their annuity would cost to buy today and that charges involved in the transaction will be transparent, but without a proper assessment of the individual’s health, this can only be an approximate indication.
“The FCA sets out how it proposes to address numerous consumer protection considerations, but there are a number of missing pieces to make this brand new market work efficiently. There is no central point for consumers to offer up their annuity to a range of buyers, with consumers instead being encouraged to approach each buyer separately to get the best deal. Each potential buyer may demand their own medical evidence which will be timely and costly. And for annuity providers to be comfortable to allow a customer to assign their annuity to an unconnected third party, they’ll want a reliable way of knowing when the annuitant dies and annuity payments should stop, but at present this simply doesn’t exist.”
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