The government pressed ahead with plans for a secondary annuity market despite a lukewarm and - at times - sceptical response from providers, a freedom of information (FOI) request has revealed.
The government decided to scrap its plans to create a market for secondary annuities in October, stating "It has become clear that creating the conditions to allow a competitive market to emerge could not be balanced with sufficient consumer protections."
Following the FOI request, however, the Treasury has published the responses of 49 providers and consumer groups on the initial secondary annuity market proposal, many of which, while broadly sympathetic, were quick to point out the plans' flaws.
These mostly centred on consumer concerns. Given the complexity involved, many respondents stressed the importance of financial advice, while many others focused on the possbility of customers receiving a poor deal.
AJ Bell, for example, wrote: "In particular, we are concerned about the risk that those wishing to sell their annuities will not obtain good value because of the potential number of parties looking to make a commercial return who will be involved in each transaction.
Others suggested that, while the proposals would work "in principle", significant safeguards would need to be put in place to ensure the market worked effectively.
JLT, for example, highlighted the necessity of safeguards, such as guidance -possibly even extending this to a government allowance to cover the basic - while Hymans talked of "significant hurdles", such as the cost of underwriting, that could frustrate the running of a large-scale, viable market.
In the wake of the government's U-turn, Old Mutual Wealth raised the idea of a compromise, arguing that, if there were not a secondary market in place, providers should at least be able to buy back the annuities they had sold their own customers.
The FOI request showed, however, that some providers had wanted this sort buy-back option from the outset, Aon Hewitt said: "It is not clear why annuity providers would agree to allow assignment to a third party, particularly if they are not able to cover their additional costs in full.
"However, the possibility of allowing them to buy back the annuity as an option (effectively providing the policyholder with an option to surrender the annuity policy) could encourage the providers to agree to assignment as an alternative."
LV echoed these thoughts, saying: "Individuals should also have the right to sell their annuity income (or part of their income) to their existing annuity provider through 'buy-back', should the annuity provider be willing to do so."
'Costs and complexities'
Several bodies totally opposed the secondary annuity market from the beginning, arguing the risks far outweighed the benefits. Charlton Frank said: "The small number of circumstances where such assignment [of rights to annuity income] might be appropriate is far outweighed by the costs and complexities that introducing such a facility will create."
And the Personal Finance Society flagged up "very real concerns from a public interest perspective", including: "How a secondary annuity market would be subject to effective legislation; how the majority of consumers would be enabled to make an informed choice; how consumers would be protected from increased risk of ‘scamming'; and whether the re-sale or surrender value of annuity contracts will offer them good value."
It added: "We don't believe the proposed timescales lend themselves to full consideration of solutions to the significant practical obstacles that will need to be overcome in the effective creation of such a market."
Among more positive feedback for the proposals was the Pension Advisory Service's observation that annuities may become a more attractive option if customers are not "locked in".
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