More than five million people will be able to sell their annuity from 6 April 2017!

patanne

To be honest I can't see the point. I can't really see any IFA recommending this as a good idea. The only way a seller is going to get any sort of value is by lying about their health - as in saying it is very good when it is in fact extremely poor. As a buyer of the annuities it would be a very high risk activity, which would imply them needing to pay peanuts for it which no IFA should recommend - and round we go in circles. Stupid idea but I am sure that there are those who WILL go for it, because a penny today is much better then 2p tomorrow.

chucknorris

Aretnap wrote: »

Anyone wanting to buy second hand annuities will have to be regulated by the FCA (link), so as a private individual you wouldn't be able to buy someone else's annuity, even if you wanted to (and I agree that it would be a lousy idea).

I've already said that to my wife (that individuals wouldn't be able to buy them), the point that I was making was that even if you could, it wouldn't be a good idea (although I accept that I could have been clearer, but as I was saying they wouldn't be any good, I didn't see the point in elaborating)

Aretnap

DaveMcG wrote: »

Firstly as I think I mentioned earlier there is a difference between a business seeking to sell annuities to the public and this scenario where valuations would be presumably confidential and the valuer has a duty of care towards the potential purchaser (investment fund etc).

There isn't really a difference as far as I can see - they're both offering a financial service, whether it be trading a pile of cash for a steady income, or trading a steady income for a pile of cash. As such, they both have a duty to their shareholders/investors to value the steady income as accurately as possible - but they also have a duty not to discriminate on the grounds of race or sex in doing so.

Of course in practice proving that a particular company was discriminating might not be easy. But it wouldn't be impossible either. And as reputable, regulated companies (stop tittering at the back) I doubt whether the companies involved would actually do it. I certainly don't remember a flood of cases being brought against insurance companies when sex discrimination was banned - they grumbled about the new law, but they accepted it and largely obeyed it.

To further stir up the can of worms, a 70yo woman in good health from the South East asks her adviser if she should sell her annuity. When he tells her that she is much less likely to achieve the true value of her policy than a 70yo man, because the market isn't allowed to use gender in its valuation, has anyone broken the law?

Not as far as I can see - whether to sell her annuity is ultimately her decision, and she's not discriminating against anyone by not selling it.

Yes, the law does mean that annuities are a somewhat more attractive product for women than for men nowadays, and that might well result in more men selling them than women - and in turn that might be reflected in the prices on offer. Which is why I personally think that banning sex discrimination in areas like this is a not a good idea. But the law is what it is - I don't make it, and if I don't like the rules then nobody's forcing me to buy annuities, or to sell them.

DaveMcG

Aretnap wrote: »

Not as far as I can see - whether to sell her annuity is ultimately her decision, and she's not discriminating against anyone by not selling it.

Yes, the law does mean that annuities are a somewhat more attractive product for women than for men nowadays, and that might well result in more men selling them than women - and in turn that might be reflected in the prices on offer.

So basically it will be impossible for the market not to contain gender bias. (Despite the efforts of EU court judges to deny reality)

Malthusian

Aretnap wrote:

Based on postcode, not on ethnic origin though, Shirley? Someone living in Easterhouse may well get a different rate than someone living in Chelsea, but a scot living in England would get the same rate as an Englishman living in England wouldn't they?

True. But most people living in Scotland are Scots. And some men have longer life expectancies than women. Underwriting is all about aggregation.

Any black person and/or man from whom they refused to buy an annuity would be able to take action against them for racial and/or sexual discrimination under the Equality Act.

They wouldn't refuse to buy an annuity, they'd offer a lower price. And they wouldn't tell them it was anything to do with their racial background. Even you compared the price you were offered with a white man who was exactly the same age and had exactly the same annuity under exactly the same terms (pretty difficult) you'd find it difficult to prove that it wasn't because he had a lower BMI or drank less or lived in a more affluent postcode. No two people are exactly the same and no two people are exactly the same except for the colour of their skin.

You could still sue under the Equality Act, you can sue anyone for anything you like. But you'd lose.

greenglide

Could there not be an equivalent of the enhanced annuities in reverse?

If you can demonstrate that you are healthy, don't smoke etc you would get more for your annuity.

It will never work!

Malthusian

If you can demonstrate that you are healthy, don't smoke etc you would get more for your annuity.

That's exactly how it would work, but if you are healthy and don't smoke it would be very unlikely to be a good idea to sell your annuity.

No insurer acts out of charity, when you sell your annuity your insurer will expect to make more money out of it than they're paying you upfront. That's the same with every insurance decision, but usually it's not a problem. When I buy home insurance I'm not expecting to make money, I'm trading money for peace of mind, a mutually beneficial trade - and an annuity is the same, I'm trading money for removing the fear of outliving my savings.

But if I sell an annuity, what do I gain? Cash now, but I expect to lose more cash than I gain in the long run - otherwise the insurer wouldn't be offering the trade. For it to be a mutually beneficial trade, there'd have to be a really good reason for me to value cash now over cash in the future. (Remember, it can't be "I have terminal cancer", because the insurer will take that into account - if they don't know about it, it's fraud, and if I don't know about it, it doesn't come into my decision.) If I'm selling the annuity to go on a cruise then I'm probably screwing myself over.

neilvw

My mum is 74, has high blood pressure and has two very small annuities totalling £400 gross per year. She is interested in selling them for cash in 2017, but I doubt anyone would consider it at that level and in her circumstances?

magpiecottage

The way this is likely to work is that businesses buying the annuities will underwrite each person - rather like they underwrite life policies. The older and less healthy you are, the more likely it is that the rate will be poor.

And, as they are businesses, which are entitled and exist to make a profit, you can guarantee that they will factor the odds in their favour.

That will allow for the cost of running their business, the cost of compliance and potential complaints from relations of the late annuitant after they die and a margin of error.

So reckon that what you will get is probably considerably less than the pension's true value.

Then add in that by taking it as cash it is likely to mean more tax than getting the money "on the drip" (something the Chancellor seems reluctant to point out) and you can draw your own conclusions about whether or not it is a good deal.