• Advice critical to protect customers in secondary annuity market
• Pension Wise unlikely to be able to offer full support given the personal nature of the decision
“Giving people the option to sell on their annuity for cash or to transfer it into a more flexible drawdown product is a logical extension of this year’s pension freedoms. Some people who purchased annuities in the past may feel they’ve missed out. But selling your annuity, which is a guaranteed income for your, and in some cases your spouse’s life, is a major decision and won’t be right for many. We believe everyone would benefit here from seeking professional advice to understand the consequences. It’s already a requirement to seek advice if your pension has a guaranteed element and is worth £30,000 or more. We believe the risks in selling your annuity are at least as great and the starting level might even need to be set lower. While we note the Government also intends to extend the remit of Pension Wise, we suspect guidance won’t go far enough for most given the highly personalised considerations around selling your annuity.”
Further background considerations for the government and industry
“Looking ahead, the industry, government and regulator must work together closely to get the right framework and consumer protections in place. We need a system people can trust, where they get a fair deal and are protected against fraudsters.
“For the minority who want to sell, one of the biggest challenges will be how to find the buyer who’ll pay most and getting assurance that the lump sum they are being offered is a fair swap for the guaranteed income they are sacrificing. Approaching a range of potential buyers would be complex, costly and time consuming. To make the market work, customers need to be able to provide their annuity, age and health details to a central point which can then seek ‘bids’ from interested buyers across the market.
“The amount you might get for your annuity will depend on your age and health and many other complex factors. We’d support someone like the Money Advice Service offering an indicative calculator online for people interested in getting a very rough idea. But potential buyers will want to see medical evidence before finalising a price.
“We need to learn from this year’s freedoms and manage expectations For example, if you’re receiving a scheme pension rather than an annuity, you may not qualify.
“And it will be vital to clearly highlight any potential risks for consumers. We must avoid people rushing to cash in an annuity, spending the money, being left with an income below the means tested benefit threshold and only then being told they’ve lost their entitlement to a Government top-up. Many existing annuitants could be attracted to a short term cash boost but end up paying the price later on in their retirement if they don’t get the right advice.”
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