UK pensions: Industry experts react to the Treasury’s secondary annuity market plans announcement, cautioning that people should seek advice and not rush decisions
That’s not festive spirit in the air you’re sensing – people are getting pretty excited about the Treasury’s announcement this morning of plans to create the long-awaited secondary annuity market. However, pensions industry figures are urging the five million people currently receiving income from an annuity not to get too carried away.
The changes are designed to extend the pensions freedoms rules to those who already held an annuity when the new laws came into force this April.
From April 2017, people will be able to trade in their fixed income stream for a cash lump sum.
However, Andy Cumming, head of advice at Close Brothers Asset Management, has cautioned that selling an annuity would not be the best option for many, particularly thanks to longer life expectancies and a fall in rates.
Cumming added that the role of advice would become even more significant, saying: “Ultimately, individuals must be taking an informed decision when it comes to retirement income, and knee-jerk reactions to new opportunities must be avoided at all costs.”
Read more: Treasury reveals details of extended pension freedoms
Yvonne Braun, director of long-term savings policy at the Association of British Insurers, added: “Providers support greater flexibility and choice for customers when it comes to their retirement funds and these proposals build on the pension freedoms which companies have worked hard to make a success. However, as the Ministers have pointed out, for most people sticking with an annuity will be the right thing, and selling one should not be done rashly.”
Meanwhile, Steven Cameron, regulatory strategy director at Aegon, called on government to manage the expectations surrounding the move.
“As we’ve seen with the introduction of the new flat rate state pension, there’s a risk that complex changes aren’t communicated properly and people are left disappointed,” Cameron said. “With the secondary annuity market, there are huge considerations – it’s absolutely not as simple as filling out a form and cashing the cheque.”
Read more: What the secondary annuities market means for you
Adrian Walker, retirement planning manager at Old Mutual Wealth, has said that the market is likely to be limited to those receiving small regular payments from their annuity, pointing out that a YouGov poll the investment business had recently carried out showed that less than 20 per cent would consider selling their annuity.
“The option to sell your annuity is not a bad one in principle,” Walked continued. “Some people will welcome the freedom and flexibility to trade in secure income for pot of money they can take flexibly in their retirement. However, before rushing into a decision, it is important that people remember that the market for second hand annuities is likely to be one in which buyers hold all the information and sellers are in a relatively weak position.”