Secondary annuity market

80% of people expect an unrealistic price for secondary annuity income.

Pension news

Please note: The information in this article was correct at the time of writing. Since then, the government has scrapped plans for a secondary annuity market. Please visit our blog to find out more.

New research by Portafina, one of the UK's largest pension advisers, found that two-thirds of people consider 90% the minimum percentage of an annuity's true value they would accept if they chose to sell it following the Budget announcement by George Osborne. Another 14% said that 80% was the least they would expect. This is totally unrealistic, warns Portafina.

The company conducted a survey of 1,000 respondents and also found that the main reason people would want to sell their annuity is if the income it currently generates is too small. These are in fact the very people likely to get the worst deal due to the fixed costs involved.

Any company looking to purchase an annuity will have their own overheads to consider, such as an in-depth medical check (for both partners if a joint annuity). They also need to make a profit themselves, on top of that being made by the original annuity provider. The impact of this is likely to be significant as they are effectively 'lending' over a long term.

Jamie Smith-Thompson, managing director of Portafina, said:
 

"Anyone expecting to receive at least 90% of an annuity's true value if they sell it has unrealistic expectations. We would expect the likely figure to be between 60% and 70% as a maximum, but it could be significantly lower.

"Annuity holders need to remember that they will not be getting a refund from their provider, instead it will be third-party investors trying to purchase their annuity payments. From an investment point of view there are many risks in buying someone else's annuity, so they will want to pay as little as possible. However, the main worry is the public being left vulnerable to companies trying to rip them off with unrealistic promises. We would like to see some safeguards introduced as part of these measures, such as an independent body with actuarial duties to allow people to see fair values of annuities so they can see exactly how any offer they receive compares."

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