There's been a lot of talk about the secondary annuity market and how it'll work in practice, but the latest update from the Treasury shows that it's one step closer to coming to fruition, with the announcement that seeking financial advice will be mandatory for those looking to sell high-value annuities.
In a statement released yesterday, the Government said that it was "tabling an amendment for mandatory advice for those with higher value annuities through the Bank of England and Financial Services Bill".
Essentially, this means that no-one who holds a high value annuity will be able to sell it on without seeking suitable financial advice first, and the Financial Conduct Authority, the industry regulator, will be responsible for making sure that this happens.
The announcement has been widely welcomed by the industry, because although financial advice will undoubtedly come at a cost to consumers, it's a small price to pay for the security of knowing you're making the right financial decision – and if you didn't, it could cost you even more in the long run.
"Without financial advice, there is a very real chance that over-65s could make the wrong decision in deciding to cash in their annuities, and getting independent financial advice tailored to their situation represents the minimum due diligence that they should undertake," commented Adam Price of VouchedFor. "Such advice comes at a cost, but it is dwarfed by making the wrong call and not having enough money to support themselves for the remainder of their lives."
Aegon's Steven Cameron reiterated those views, adding that the provider welcomed the Government's intention to make advice mandatory: "Giving people the option to sell on their annuity for cash or to transfer it into a more flexible drawdown product is a logical extension of this year's pension freedoms, [but] selling your annuity, which is a guaranteed income for your, and in some cases, your spouse's life, is a major decision and won't be right for many.
"We believe everyone would benefit here from seeking professional advice to understand the consequences. It's already a requirement to seek advice if your pension has a guaranteed element and is worth £30,000 or more, [but] the risks in selling your annuity are at least as great, and the starting level might even need to be set lower."
The option to sell annuities in a secondary market is set to come into force in April 2017, and the Government is expected to release more details of the specifics involved in the years and months leading up to it. Indeed, the Government has said that it will soon consult on the secondary legislation to set out the necessary requirements, so hopefully, we'll soon get a better understanding of what the market could be like.
If you still want the guaranteed income that only an annuity can bring, consult our no-obligation annuity service to find out more.
Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.
Moneyfacts.co.uk will, like most other websites, place cookies onto your computer’s
hard drive. This includes tracking cookies.