IFoA Comments on Government cancelling plans for secondary annuity market

Andrew Chamberlain, Chair of the IFoA's Life Board, comments:

“We are pleased to see the Government has responded to concerns we and others have had about the potential for secondary annuity market mis-selling and that consumer protection is of vital importance.  Research the IFoA conducted earlier this year showed that those most likely to sell their annuities are likely to be the most vulnerable in society, particularly the very elderly and may be open to undue influence from others.

“In responding to HMT and FCA consultations on the secondary annuity market, the IFoA outlined some potential dangers for consumers of a secondary annuity market, particularly:

• Access to adequate financial advice would have been key to annuitants in understanding the pros and cons and risks relating to the choices they face in any secondary annuity market. Appropriate advice / guidance infrastructure should have been put in place before any secondary annuity market were opened.
• A robust consumer protection regime would also have been essential to avoid the potential, but real risk, of secondary annuity mis-selling.  Many annuitants will likely be amongst the most vulnerable in society, particularly in older age; for example, where they are open to undue influence from relatives or others (such as carers in a nursing home).  Robust consumer safeguards both in terms of advice and regulation of annuity purchasers’ sales processes would therefore have been necessary, although such measures would be unlikely to eliminate secondary annuity mis-selling entirely.
• We agree that perceived value for money could have been a particular issue during the early stages of a secondary annuity market, if a relatively small number of buyers were offering to buy annuities

“The IFoA research also highlighted that most annuitants are likely to struggle to place a value on their annuity income and may have unrealistic expectations of the amount they could receive on the secondary annuity market, with over 40% of annuitants expecting to receive a lump sum in excess of 100% of the future annuity payments.”