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20/04

Press comment: HMRC Secondary Annuity Market consultation

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:

Old Mutual Wealth

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

It has an adviser and customer offering spanning:

  • Financial advice delivered by the Intrinsic network in the UK and AAM Advisory in Singapore
  • Platform based wealth management and protection products delivered by Old Mutual Wealth in the UK & Italy* and Old Mutual International globally
  • Asset management solutions delivered by Old Mutual Global Investors
  • Discretionary investment management delivered by Quilter Cheviot.

Old Mutual Wealth oversees £119 billion in customer investments (as at 30 September 2016).

Old Mutual Wealth is part of Old Mutual plc a FTSE 100 group that provides life assurance, asset management, banking and general insurance. Old Mutual is trusted by more than 19.4 million customers across the world and has a total of £342.7 billion assets under management (as at 30 June 2016).

*Old Mutual Wealth announced the sale of Old Mutual Wealth Italy to Ergo Italia on 9 August 2016. The transaction is pending completion.

This press release is for journalists only and should not be relied upon by financial advisers or customers. Investments may fall or rise in value and investors may not get back what they put in.