Secondary Annuity Market

easilyparted

This starts from April 2017 and enables withdrawal of a lump sum by those who are already receiving an annuity. Does anyone know roughly what proportion of the original lump sum will be available after 10 years of annuity receipts?

Linton

April 2017 is when the laws preventing a secondary annuity market are removed. When a secondary market will be available is very unclear as is how it will work and what sort of rates will be available. The government is still consulting. One can see all sorts of difficulties:
- how does the annuity provider know when the original owner of the annuity has died?
- will there need to be health checks? If not what is to stop people cashing in their annuities on their death-bed?
so I suggest you dont hold your breath waiting.

AnotherJoe

easilyparted wrote: »

This starts from April 2017 and enables withdrawal of a lump sum by those who are already receiving an annuity. Does anyone know roughly what proportion of the original lump sum will be available after 10 years of annuity receipts?

Any such market will have nothing whatsoever to do with the lump sum, the value will be related only to the monthly payments.

dunstonh

Does anyone know roughly what proportion of the original lump sum will be available after 10 years of annuity receipts?

None. That isnt how it is going to be priced. There is no relation to the original purchase price.

Those buying annuities will be looking at the income and your life expectancy. They will then factor in the risk of early death and a profit margin. How much these will be is totally unknown. And as Linton says, there are still some issues to solve.

You can expect something along the lines of the following example:
lets say you are aged 75. Life expectancy on clean health is 85. However, some medical issues exist which mean instead of 10 years they think you have 8 years. To reduce their risk of early death, they reduce it to 6 years. Then they factor in the tax they will need to pay, so they work on net basis (knocking off another 20%). Then they factor in their profit which could take you down to around 3 years worth of annuity income being offered.

Aretnap

AnotherJoe wrote: »

Any such market will have nothing whatsoever to do with the lump sum, the value will be related only to the monthly payments.

And your age and (probably) your state of health. You'd pay a lot more for an annuity from a 60 year old in perfect health than an 80 year old with cancer, for example - even though they might have had their annuities for the same amount of time..

Plus other factors like interest rates and the attractiveness of other investments. For example if interest rates go up then investors will be less keen to buy your annuity as a source of income - because they could get decent income from by putting their money in the bank instead. So the value of your annuity would drop.

In other words, it depends on a lot of factors - it's certainly nowhere near as simple as "after X years you can expect about Y% of your original lump sum back".

kidmugsy

dunstonh wrote: »

could take you down to around 3 years worth of annuity income being offered.

Never mind; there will be plenty of dopes keen to sell, telling us - as if the thought had never occurred to us - that there are no pockets on a shroud, but omitting to mention that they intend to sponge off the taxpayer once the money is spent.

dunstonh

kidmugsy wrote: »

Never mind; there will be plenty of dopes keen to sell, telling us - as if the thought had never occurred to us - that there are no pockets on a shroud, but omitting to mention that they intend to sponge off the taxpayer once the money is spent.

That's a good point. Would an annuity sale to third party be classed as deprivation. It should be and I hope the benefits system takes it into account.

TrickyDicky101

I suspect the underwriting costs would seriously eat into any payment paid to the annuitant making it very uneconomic for any but the largest annuities/youngest annuitants.

zagfles

dunstonh wrote: »

That's a good point. Would an annuity sale to third party be classed as deprivation. It should be and I hope the benefits system takes it into account.

Surely the same deprivation rules would apply as if someone spent their drawdown pot equally as quick.

dunstonh

zagfles wrote: »

Surely the same deprivation rules would apply as if someone spent their drawdown pot equally as quick.

Quite possibly. Historically, people didnt do drawdown unless they had large amounts and they were capped on what they could do.

I don't know what takes place now in respect of benefits calculations.

grey_gym_sock

i don't see how the annuity sale to a third party could itself be classified as deprivation of capital. a sale at undervalue can be deprivation (because it is similar to a part gift), but this sale would be, almost by definition, at the market value.

just because it's a bad financial decision, it doesn't become deprivation of capital. or would failing ever to switch to cheaper utility providers count? or leaving large sums in 0% accounts for decades? etc.

rapidly spending, or giving away, the proceeds of the sale could be deprivation of capital. at least in extreme cases.

but i doubt that the less extreme cases, where capital is spent over a decade or 2, perhaps due to a combination of deliberate plans to spend more in early retirement, and lack of realistic longer-term planning, would count. it is indeed effectively the same as miss-managing drawdown, and running out of money; but now affecting people on lower incomes.

though i suppose i'm just speculating. by definition, people slowing running out of money after using the new pension "freedoms" won't happen for a decade or 2, so that's a problem for future governments will have to decide on. which is pretty much the core of osborne's strategy.