26th June 2015
The trade body for insurers has warned the government will put pensioners at risk if it rushes into the building of a second-hand market for selling annuities.
The government has previously said it wants to give pensioners the ability to sell their annuities, which provide an income for life and are currently non-refundable, in April 2016.
However, the Association of British Insurers (ABI) said while it supports the plans to allow pensioners to trade in their annuities for a cash sum as an extension of the pension freedoms, the implementation should not be rushed.
It said there were ‘considerable challenges’ to establishing a functioning market and protection for consumers needed to be put in place, especially access to advice and guidance.
The ABI called for clarity around how the rights of dependents and beneficiaries will be protected as many of those cashing in their annuity will be vulnerable to illness and reduced mental capacity. Often annuities cover not just one person but also their spouse, who would also lose out.
It also said there was a need to protect people from scams and fraud.
The exact scope of the proposals needs to be laid out so that consumers know what is included and whether consumers will be allowed to sell their annuities back to the provider they originally bought them from – although providers will not be obliged to buy-back the annuity.
Yvonne Braun, director of long-term savings strategy at the ABI, said: ‘The government’s proposals to create a secondary annuity market will potential extend the freedom and choice reforms, and we want them to work for customers. Naturally there are considerable challenges in establishing a functioning market, and many unresolved complex legal, regulator and prudential questions.’
She said that the ABI wanted to work with the government to resolve any issues ‘but given the lessons learned from the freedom and choice reforms and the need for clarity in many areas, we urge the government not to rush these proposals through for 2016’.
‘Allowing more time will ensure an appropriate regulatory regime can be developed to give this new market a chance to succeed,’ said Braun.