Financial ServicesProviders Company Schemes Public Sector Third Party Administrators

Secondary annuities - rip it up and start again?

Secondary annuities
Luke Carter

Luke Carter

Regulatory Advisor

argues the case for allowing small annuities to be cashed in

01 Nov 2016

The first major policy u-turn in pensions since Theresa May took charge was to abandon plans to allow people to sell their annuities. Second hand annuity trading (as the proposal became known) was a policy announced by George Osborne that would have extended the freedom and choice in pensions to those people that had already bought annuities before 27th March 2015.

So why did the government scrap their plans? The main reason given is because of consumer protection concerns. A secondary annuity market would have required robust controls (for which read expensive) to ensure that the market was functioning correctly. HM Treasury was also concerned that the expected benefits would not actually materialise (in terms of the amount of immediate tax revenue it would raise). There were also concerns that a secondary annuity market would open up pensioners to additional risks of being scammed out of their pension and it was becoming clear that few providers wanted to buy annuity policies, worried by the risk of a future mis-selling review.

That being said, there are a pocket of people that could benefit from selling their annuities. There are annuities still being paid that, due to old HMRC rules on small pension pots, cost more to pay out than the annuitant is receiving in pension. It is of interest to both the annuity company and the annuitant that these ongoing payments are rolled up into a single final payment.

In Aquila Heywood's original response we supported the right for these people to sell their annuity back to the company making the payments rather than on an open secondary market. There are benefits to the individual in receiving a small lump sum rather than a string of trivial payments that would hardly buy a Starbucks coffee, and it would free up resources at the annuity company as well. Our proposal is that any annuity bought with a fund less than the current trivial commutation limits should be able to be sold back. We hope that the government will still allow these annuities to be converted to a cash lump sum by making appropriate changes to the current Pensions Bill.

Luke Carter is Regulatory Advisor at Aquila Heywood, the largest supplier of life and pensions administration software solutions in the UK.

Further Reading