Yesterday (18 October 2016), the UK Government announced it will not be taking forward its plans to create a secondary annuities market. The announcement was unexpected – having set the course for creating more choice for holders of annuities by enabling them to surrender an annuity back to the provider or sell it to a third party, the Government has concluded it is unable to deliver proper customer protection.
For the insurance industry, this will come as both a disappointment and a relief. A disappointment because the ability to buy back annuities would have provided insurers with a new method of reducing their liabilities and capital requirements. A relief because it would have required insurers to balance along a new tightrope of consumer protections and to develop new procedures, even if they were seeking to minimise their participation.
This development leaves the dichotomy between those who retired before pension freedoms were introduced in 2015, who were required to buy an annuity, and those who retired after that and who were not required to do so. It will be interesting to see if any alternative proposals will be offered to the former group, some of whom may feel unfairly treated.
A detailed note about the proposals was posted on our blog on 30 September 2016.