Skip to main content
The Actuary: The magazine of the Institute and Faculty of Actuaries - return to the homepage Logo of The Actuary website
  • Search
  • Visit The Actuary Magazine on Facebook
  • Visit The Actuary Magazine on LinkedIn
  • Visit @TheActuaryMag on Twitter
Visit the website of the Institute and Faculty of Actuaries Logo of the Institute and Faculty of Actuaries

Main navigation

  • News
  • Features
    • General Features
    • Interviews
    • Students
    • Opinion
  • Topics
  • Knowledge
    • Business Skills
    • Careers
    • Events
    • Predictions by The Actuary
    • Whitepapers
    • Webinars
    • Podcasts
  • Jobs
  • IFoA
    • CEO Comment
    • IFoA News
    • People & Social News
    • President Comment
  • Archive
Quick links:
  • Home
  • The Actuary Issues
  • June 2016
06

Secondary annuity 'a soft market to start with', conference told

Open-access content Friday 10th June 2016 — updated 5.50pm, Wednesday 29th April 2020

A group of panelists in a discussion has predicted a secondary annuity market will have potentially more sellers than buyers when it is being rolled out in April next year.

2


Tom McPhail, head of pensions research at Hargreaves Lansdown, said the overall market would be "pretty small", because of the complexity in trading existing annuities.

Speaking at The Future of Life & Pensions conference in London, organised by business media firm Marketforce, he said: "It's definitely not as straight forward as the primary annuity market." 

McPhail was referring to the challenges around consumers' risks outlined by David Geale, director of policy, strategy and competition division at the Financial Conduct Authority (FCA). 

Geale presented a number of potential risks such as people running out of income in their retirement, challenges of assessing value for money and vulnerability. 

He said: "Will they sell their annuity to pay off debt?" 

Geale also raised concerns about conflict of interests between brokers and buyers and the possibility of demand not meeting supply, with only a small poll of buyers interested in purchasing annuities. 

McPhail admitted he was 'sceptical' about the numbers provided by the FCA regarding the size of the market.

Geale estimated in the first two years of the rollout, there would be nine advisers and brokers and 10 direct buyers interested in buying existing annuities. 

In the third year, the figures are projected to fall to six advisers and brokers and seven direct buyers.

In terms of sellers, the FCA estimated around 500,000 consumers would enquire about a sale in the first year of the rollout. It also expected 250,000 to 375,000 of them to go as far as obtaining quotes, while 75,000 to 250,000 of people would eventually sell their income.

John Lawson, pensions policy director at Aviva, agreed that it would be "quite a soft market to start with". 

"Think of some of the underwriting costs and put all these customers through the system. You start with 500,000 at one end and end up with 75,000 who actually make a deal at the other end," he said. 

"There's some level of cost for the 500,000 at one end, and another level cost for the 250,000 who reach the next stage, and then another level for the 75,000 who actually go ahead."

Lawson stated that all these charges had to be factored in, adding: "All those costs and sub-costs are paid by the end customer. We may find in the early days that some customers do not find a fantastic deal." 

The FCA is currently developing steps for the regulation of the market and conducting a number of proposals, such as brokers' disclosure of charges and the quotation format to be standardised. 

But Steve Lowe, group communications director at JRP, argued intermediaries were important to help customers get better prices. 

He said: "Without intermediation customers get poor value. So it's very important that the FCA recognise this and say that intermediation will be crucial in this market which is absolutely key in driving competition".

Another measure to address better consumer protection was to mandate a default step to Pension Wise, which Lowe considered 'crucial'.

"Pension Wise has the opportunity to impartially to deploy the risk warnings," he said.

This article appeared in our June 2016 issue of The Actuary.
Click here to view this issue
Filed in:
06
Topics:
Life insurance

You might also like...

Share
  • Twitter
  • Facebook
  • Linked in
  • Mail
  • Print

Latest Jobs

Senior Underwriting Risk Manager

London (Central)
£85K-£95K + Benefits
Reference
124386

Reserving Manager (Contract)

London (Central)
£1200 - £1400 per day
Reference
124385

Life Actuary - Contract - IFRS 17 Financial Impact

England, London / England, Bristol / North Yorkshire, England
£900 - £1150 per day
Reference
124384
See all jobs »
 
 

Today's top reads

 
 

Sign up to our newsletter

News, jobs and updates

Sign up

Subscribe to The Actuary

Receive the print edition straight to your door

Subscribe
Spread-iPad-slantB-june.png

Topics

  • Data Science
  • Investment
  • Risk & ERM
  • Pensions
  • Environment
  • Soft skills
  • General Insurance
  • Regulation Standards
  • Health care
  • Technology
  • Reinsurance
  • Global
  • Life insurance
​
FOLLOW US
The Actuary on LinkedIn
@TheActuaryMag on Twitter
Facebook: The Actuary Magazine
CONTACT US
The Actuary
Tel: (+44) 020 7880 6200
​

IFoA

About IFoA
Become an actuary
IFoA Events
About membership

Information

Privacy Policy
Terms & Conditions
Cookie Policy
Think Green

Get in touch

Contact us
Advertise with us
Subscribe to The Actuary Magazine
Contribute

The Actuary Jobs

Actuarial job search
Pensions jobs
General insurance jobs
Solvency II jobs

© 2022 The Actuary. The Actuary is published on behalf of the Institute and Faculty of Actuaries by Redactive Publishing Limited. All rights reserved. Reproduction of any part is not allowed without written permission.

Redactive Media Group Ltd, 71-75 Shelton Street, London WC2H 9JQ