Secondary Annuity Market

Freecall

dunstonh wrote: »

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.

....... and then, having taken your 3 years worth of annuity income, you go on to live for 20 years!

What a bummer. The ex-annuitant could have plenty of time to repent at leisure.

Linton

Freecall wrote: »

....... and then, having taken your 3 years worth of annuity income, you go on to live for 20 years!

What a bummer. The ex-annuitant could have plenty of time to repent at leisure.

There's no problem - its an obvious miss-sale.

System

It can't possibly work on an individual basis - who would want to buy an income stream based on the life expectancy of a single unknown individual? It would be like gambling on someone's life - they might live 20 years, or they might die under a bus next week, and your income would be gone.
Would you be told who this individual was - could you pop round occasionally to check that he was all right, eating sensibly, taking exercise, doing his best to keep alive for you?

Surely to work at all such sales would have to be grouped and the pool underwritten by an insurer?
The agents for such companies would be rather unsavoury individuals, a cross between undertakers and the sleazier private detectives. Adept at spotting people who looked unhealthy but worth a bet that they might just outlive their expectancy predictions, and then touting for their business.
Having "bought" such people, they might then be tempted to offer them inducements to change their lifestyle to become a bit healthier.
It's mind boggling with possibilities, some doubtless criminal.

AnotherJoe

Clifford_Pope wrote: »

It can't possibly work on an individual basis - who would want to buy an income stream based on the life expectancy of a single unknown individual?

The sort of people who buy a row of vines in a french vineyard, storage pods with "guaranteed" return at cost after five years, parking spaces at Heathrow airport, a forest in Lithuania ......

macca1974

if this ever comes to pass and if there are actually any firms involved in the market who want to buy old annuities, it will be fascinating to see how much people actually get for them. I'm sure that people will be in for a bit of a shock when they see how little that they are being offered. Regarding them being an automatic mis-sale, I suspect that finding an IFA who will actually transact this type of business will be even more difficult than it is to find one to give advice on Final Salary transfer. The whole thing was a budget soundbite that will inevitably turn into a damp squib.

Aretnap

Clifford_Pope wrote: »

It can't possibly work on an individual basis...

It's not supposed to. Buying annuities will be a regulated activity, which in practice means that only insurance companies, investment funds or similar will be able to do it. The usual requirements for things like risk warnings and protection against mis-selling (or mis-buying) will apply, so it will not be (quite) as shady an area as touting airport parking spaces and the like.

bigadaj

Far more profitable to take out life insurance on a third party rather than buy an annuity, and then arrange an unfortunate accident.

RickyB2000

What about insurance companies buying back their own annuinties from their own customers? This way they can manage the individual risk (which they are already exposed to), reduce long term costs for a discounted up front payment.

dunstonh

RickyB2000 wrote: »

What about insurance companies buying back their own annuinties from their own customers? This way they can manage the individual risk (which they are already exposed to), reduce long term costs for a discounted up front payment.

Can you imagine the press coverage?

headline:
insurer pays 10% of what they took 5 years ago to buy back annuity.

RickyB2000

worth it just to cash in on the mis selling compensation. Could be quite lucrative and those that didn't sell will be kicking themselves.