The announcement by the UK’s largest annuity broker came the same day the Financial Conduct Authority issued a consultation paper on the secondary annuity market.
From April 2017, individuals will be able to sell their annuity income without any tax restrictions via a secondary annuity market, as long as their annuity provider agrees.
The decision by Hargreaves Lansdown not to offer this service, however, followed analysis of the market and potential risk to consumers.
Tom McPhail, head of retirement policy, said: “Like the government, we are keen to see as many investors as possible taking on both the freedom and the responsibility to manage their own retirement savings. For a small number of investors, selling an existing annuity income in exchange for a lump sum may make sense.
“However ever since this proposal was first made, we have been concerned that for many investors, it is likely to be a poor decision. We have therefore made the decision not to enter the secondary annuity market at this time.
“We are reviewing whether Hargreaves Lansdown will offer an advisory service to investors who may be contemplating selling their annuity and who are looking for an advisor to consult on the decision,” McPhail said.
Risks to investors
The risks identified by Hargreaves Lansdown include:
Longevity risk: If they are fortunate to live a long time, without a guaranteed income there is an increased risk of running out of money. Many investors underestimate how long they will live.
Value for money: Investors may find it difficult to accurately assess the value of the income they are giving up. This could cause them to accept a low lump sum in exchange.
Costs: Many secondary annuity sales are likely to be for small sums. The additional administrative costs involved in the transaction could eat up a substantial portion of the value.
Choice: Investors will not be offered the option of a partial sale. This means they have a binary choice: either a full sale or none at all. This limits their scope to hedge their risks.
Vulnerable investors: Vulnerable investors in challenging circumstances due to financial pressures, poor health or low financial capability are at particular risk in the secondary annuity market.
Fraud: There is a risk of financial fraud or scams targeted at investors with annuities, who could be persuaded to exchange them for a lump sum.
To read more about the consultation paper, click through to the next page…
