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Press comment: HMRC Secondary Annuity Market consultation

20/04/2016

Jon Greer comments on HMRC’s publication of a consultation into the Secondary Annuity Market - planned for introduction in 2017.

Jon Greer, pensions technical expert at Old Mutual Wealth, comments:

“In its consultation document the Government is estimating that 6% (300,000) of the five million people who currently have an annuity in payment will look to exchange their regular payment for cash, or another pension product. Their own analysis suggests this could result in a tax windfall of almost £900m in the first two tax years (2017/18 and 2018/19).

“However recent research we undertook with YouGov* suggests this could actually be a significant underestimate, with 17% of respondents indicating that they would be interested in exchanging their annuity for cash. The main reasons given for doing this include wanting to invest the money elsewhere and preference for a cash lump sum over a small annuity payment. This could mean that more than 850,000 people could be looking to sell their annuity which, on the Government’s own estimates could result in around £2bn in tax revenue in the first two years.

“Anyone considering selling their annuity should be reminded that the old adage of “a bird in the hand being worth two in the bush” is not necessarily always true. While a lump sum may look attractive in the short term, annuities have the benefit of being guaranteed income for life and may also contain additional advantages that customers should be aware of before selling. The problem I can see with this market is that buyers are likely to have all the knowledge, and the sellers will have little to none.

“From a purely practical point of view, this whole plan is doomed unless the Government finds a solution to a fundamental point. There is nothing in the document released today that deals with the death of the original annuity holder and how the insurer will ever know. This is key as the insurer will need to know how long to pay the annuity for where it has been assigned/bought. This situation is exacerbated if the annuity has dependants pension too. How will the insurer know if the beneficiary has died, and who is responsible for keeping track. Even if a solution is found this will be a real headache for insurers to administer.”

* Total sample size was 1,557 adults. Fieldwork was undertaken between 22/03/2016 - 29/03/2016.  The survey was carried out online. The figures have been weighted and are representative of all UK adults within each of the 5 age groups.

For more information contact

Tim Skelton-SmithOld Mutual Wealth02380 916 99807824 145 076tim.skelton-smith@omwealth.com

Notes to editors:

About Quilter plc:

Quilter plc is a leading wealth management business in the UK and internationally, helping to create prosperity for the generations of today and tomorrow.

Quilter plc oversees £118.1 billion in customer investments (as at 30 September 2018).

It has an adviser and customer offering spanning: financial advice; investment platforms; multi-asset investment solutions and discretionary fund management.

The business is comprised of two segments: Wealth Platforms and Advice and Wealth Management.

Wealth Platforms includes the Old Mutual Wealth UK Platform; Old Mutual International, including AAM Advisory in Singapore; and the Old Mutual Wealth Heritage life assurance business.

Advice and Wealth Management encompasses the financial planning network, Intrinsic; Quilter Private Client Advisers; discretionary fund management business, Quilter Cheviot; and Quilter Investors, the Multi-asset investment solutions business.

The Quilter plc businesses are being re-branded to Quilter over a period of approximately two years:

• The Multi-asset business is now Quilter Investors

• Intrinsic to Quilter Financial Planning

• The private client advisers business is now Quilter Private Client Advisers

• The UK Platform to Quilter Wealth Solutions

• The International business to Quilter International

• The Heritage life assurance business to Quilter Life Assurance

• Quilter Cheviot will retain its name

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