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201512 UK Treasury annuity market consultation
As part of the UK Government's ongoing pension reforms, the
Treasury launched a three month consultation process in March
2015, inviting industry feedback on how a secondary market in UK
annuities could operate in the best interests of consumers and
secondary investors alike.
This would provide an estimated five million UK pensioners with
the choice to sell their existing annuity in a newly created open
market; which SL estimates could see initial trading in excess of
£500 million a year.
The original intention of the Government was to launch the
secondary market in April 2016.
However, three weeks after the close of the consultation process
on 18 June 2015, the UK Chancellor of the Exchequer, George
Osborne, announced in his Summer budget 2015 that implementation of the
secondary annuity market should be delayed until 2017, "to ensure
there is an in-depth package to support consumers in making their
Since then the UK Treasury has been busy digesting the industry
responses to the consultation, and meeting with key market
stakeholders to bring together a set of recommendations to the UK
Government on how the market should operate. Their response to the call for evidence was
published on 15 December 2015.
SL Investment Management (SL) has fully engaged in the process
by providing a full written response to the questions raised in the
consultation. Further, SL has actively participated in a subsequent
series of meetings with the UK Treasury, the Financial Conduct
Authority and the Association of British Insurers throughout the
Alec Taylor of SL commented, "SL has pioneered the UK Traded
Endowment Policy (TEP) market since 1990 and we have over 12 years'
trading experience in the US Life Settlement market. As such, we
bring a somewhat unique perspective to discussions on the creation
of a secondary UK annuity market and how the market may ultimately
operate in practice."
Highlights from the Treasury publication on 15 December are:
Annuity providers will be permitted to buy back their
own annuities. However, they will need to do this as
part of a blind bidding process.
Retail investors will not be permitted to buy
individual annuities direct in any form, whether through a
secondary or tertiary market. However, it is unclear
whether retail investors will be able to participate via structures
such as Collective Investment Schemes.
In the UK, only FCA regulated entities will be permitted
to buy annuities on the secondary market. However, the
transaction will need to be performed via a suitably regulated
Partial sale of annuities will be discouraged by
classifying them as an 'unauthorised payment' under tax
legislation. However, the Government may review this
arrangement in the future.
Annuity providers will be allowed to make an
administration charge to cover the costs associated with a
transaction. However, the FCA will look to put rules
in place to ensure these remain reasonable.
The Government plan to expand the Pension Wise service
to support consumers; and independent advice will be mandatory for
the sale of annuities above a certain threshold.
However, the threshold amount is yet to be determined.
Annuity providers will not be required to provide
'benchmark values' to annuitants. However, the
government are working with the FCA to create an online
benchmarking tool for consumers.
Alec Taylor continued, "There are some positive elements for
consumers outlined in the Treasury response, particularly in
relation to the distance placed between annuity providers and their
own book of annuitants."
"This is important. Our experience of the UK TEP market shows
that consumers continue to be generally unaware of the secondary
market option. Those looking to cancel their contracts early are
frequently surrendering their policies back to the issuing life
office for a price lower than they could achieve on the secondary
"It is good news that the Treasury appear to have acknowledged
this, putting a degree of consumer protection in place. However,
there needs to be further clarification from the FCA regarding the
role of the intermediary in the transaction and we look forward to
engaging in their secondary annuity consultation process that
should commence early 2016."
"Further, there are market elements such as the death
notification process, protection for beneficiaries, the impact on
annuitants in receipt of means tested benefits that have been
acknowledged, but remain unresolved. As they say, 'the devil is in
For further information on the latest developments in the
creation of a UK secondary annuity market please contact Alec