Second-hand annuities: sellers face 25 per cent loss of value

Golden eggs

Annuitants looking to sell their annuity income to a third party for a cash sum could be sorely disappointed with the amount investors are willing to pay for a second-hand annuity, according to retirement specialist Portal Financial.

People who own annuities will be able to resell them on a secondary market from April 2017, the government recently announced.

Taking as an example £42,000 - the average sum used to buy an annuity - Portal warns policyholders could lose out in four ways:

  1. £500 to £1,200 paid as the fee for government-mandated financial advice;
  2. £1,500 to £2,600, equal to 3 to 6 per cent, for the second-hand annuity broker charge;
  3. £2,500 to £2,600, equal to 6 to 100 per cent, the return the buyer would likely be looking for (in other words, they would want to pay less than the likely remaining income from the annuity);
  4. £250 to £1,000 for a potential administration charge by the annuity provider for costs associated with the administration.

Portal estimates the resulting price paid for a second-hand annuity could well be less than 75 per cent of the expected remaining income, or even worse for people who are older or whose health have deteriorated.

Jamie Smith-Thompson, managing director of Portal Financial, says: 'Creating a secondary market for annuitants wishing to sell their policy has potential advantages for some customers, but, as the ultimate financial return that a policyholder will receive is likely to be significantly less than what the policy may have paid out over the full term, it requires careful consideration.

'Buyers will be third-party investors looking for a profit, so they will want to purchase as cheaply as possible.

'They may consider that a potential seller does not believe they will get the full value of the annuity, in other words that they do not believe they will live a long time, which will worry investors and reduce the sum offered on the secondary market.'

The new April 2017 start date came after the initial proposed date was pushed back after the Conservative election victory.


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