After several weeks of speculation, the Treasury yesterday
released its "consultation" on selling annuities (available here). Indeed, the Government seem to prefer to call it a
"call for evidence" - which is a bit like saying that it's an idea
that George Osborne came up with one evening, after a few beers in the pub
with Steve Webb (although Osborne doesn't strike me as a beer type, perhaps it
was a few glasses of claret), which still needs to be fleshed out a bit.The document makes it pretty clear that there's an awful lot of important detail that hasn't really been worked out. For example, the Government still seems undecided about whether to allow annuity providers to “buy back” annuity policies from policyholders, as an alternative to selling an annuity to a third party. The Government is clear that “consumer protection” is required, but the nature of that protection is unclear. Fundamentally, if you are selling your annuity, the advice you need is whether the sum you are offered is a good deal, which boils down to whether the party buying your annuity thinks you are in better health than you really are.
Practical problems - like how to work out when an annuitant dies, if the annuitant no longer has an interest in the annuity policy - are flagged, but the Government doesn't seem to have a clear view on how to solve them.
The Government seems to want to make the sale of an annuity to a third party subject to the agreement of the annuity provider. Now why would an insurance company agree to this? The risk for the insurer is that they overpay on the annuity policy because the new owner of the policy has no idea whether the annuitant is alive or dead. So I anticipate that insurers will be reluctant to agree, unless they can charge a fat fee for the pleasure of doing so - which may simply mean that the option to sell an annuity becomes prohibitively expensive.
Notwithstanding this lack of detail, the Treasury is optimistic enough to budget over £500m in extra tax revenue (in the first year alone) as a result of annuity sales. This must assume that not only will annuitants sell their policy, but that they will also take the proceeds more quickly than would otherwise be the case, thus accelerating tax revenue. There is a certain irony about this - in the introduction to the consultation, the Government says that it "believes that for most people, keeping their annuity income will be the right decision" - yet clearly the Treasury think that enough people will make the "wrong" the decision to give them a significant tax revenue hike.
Ultimately, this half-baked policy feels like opportunistic electioneering – the vagueness of the consultation gives the impression that, post-election, it might quietly be kicked into the long grass, to wither and die.
Actuarial Director
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Email: contactus [@] broadstone.co.uk
