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08 May 2015

UK Treasury launches consultation on the creation of a secondary market in UK annuities

As part of his budget announcement on 18 March the Chancellor of the Exchequer, George Osborne, announced the UK government's intention to create a new secondary market in annuities. This would provide an estimated 5 million UK pensioners with the choice to sell their existing annuity in a newly created open market. The government has indicated their aim to implement these changes by April 2016.

The Chancellor's announcement was made on the dawn of the launch of newly created legislation - perhaps the most radical pension reforms witnessed in the UK in over a century - already redefining the UK pension landscape. From 6 April 2015, tax and legislative barriers have been relaxed. Those approaching retirement now have freedom to access their defined contribution pension pots after age 55. Importantly, this new generation of pensioners will no longer be required to purchase an annuity at retirement.

However, retirees who have already taken out an annuity remain trapped within the old system and do not currently have the freedom to exit from these arrangements.

The government stated, "There is no reason to prevent retirees who have already purchased an annuity from selling their right to future income streams for an upfront cash sum if it is right for them. So from next year, we will remove the tax restrictions on people seeking to assign their annuity income to firms wishing to purchase it. Individuals will be able to take the proceeds of their assignment and save or spend them as they see fit, taxed only at their marginal rate"

In preparation for the new legislation, the UK public and financial services industry have now entered a 3 month consultation process where the government have invited comment on how such a market could operate in the best interests of consumers and secondary investors alike.

As part of this consultation process SL Investment management is preparing a detailed submission to the UK government, drawing upon our 25 years' experience in life policy markets, outlining how we believe such a market could be created in a fair and efficient manner.

Patrick McAdams, Investment Director at SL Investment said, "We have unparalleled experience in the trading and management of both UK and US life policy assets. Since 1990, we have steadily invested in the development of industry leading systems and expertise to facilitate the efficient evaluation, trading and management of life policy assets. We are now very keen to engage with potential professional investors to bring forward our actuarial and product development expertise in support of the launch of this new market."

SL Investment Management is anticipating that a newly created annuity market in the UK would create an initial wave of existing annuitants looking to release funds from their policies.

Patrick continued, "Our existing end to end life policy servicing proposition would provide corporate and institutional investors with rapid access to such a market. We will be working hard over the coming months to build on our existing Traded Endowment Policy retail presence, extending our service offering to a new set of customers, many of whom will also have used our services in the past to sell their endowments."

For more information on the potential to invest in a newly created secondary UK annuity market, or to discuss life policy investments in general, please contact Patrick McAdams.