Secondary annuity market could require administration overhaul and lead to increasing costs

14 July 2015

Equiniti welcomes the deferral to 2017 for the creation of a secondary annuity market

Equiniti, the UK’s largest pensioner payment provider, welcomes the deferral to 2017 for the creation of a secondary annuity market, but warns that the proposals to allow annuitants to sell their policies will still create significant challenges for the insurance and pensions industry, as it fundamentally changes the administration, which could spark increasing costs.

Separating the owner of the policy from the life insured would mean the life insured no longer has a financial interest in the policy and therefore could be less inclined to notify the insurer of a change in address, tax position or, ultimately, death. If the insured retired overseas this could cause further administrative complications.

In addition, overpayments as a result of a failure to notify the death of the life insured may occur and could be problematic to recover. The issue would be amplified as the policy could be resold many times and the new owner could be based outside the UK.

Equiniti warns a secondary market could also increase risk of fraud or money laundering issues especially where a potential buyer is based outside of the UK.

Paul Sturgess, pensions strategy director, Equiniti says; “We welcome the delay in the implementation of a secondary annuity market as there are significant challenges that need resolving. Many annuity providers may not have the necessary technical, operational and compliance resources to handle the transitions and, therefore, I would expect that there will be a swing to outsourced administration. There will be a cost associated with these administrative issues which someone will have to bear the cost of – perhaps there might be a need for a standardised legal contract whereby the purchaser is responsible for all future administrative costs.”