A more balanced announcement on annuities was given in the Budget compared to the bombshell announcements of last year.

Allowing annuities – long viewed as poor value for savers – to be exchanged for a lump sum will help certain customers, as well as improve the efficiency of the retirement market. The ‘secondary annuity’ market is envisioned by the Treasury to work as shown in the diagram below. It will level the playing field between annuities and drawdown by giving reassurance to those who already have an annuity that should their circumstances change they can access their annuity for cash.

The changes are undoubtedly challenging for Life, Pensions & Investment (LP&I) providers. The industry will have to work out the details for creating a competitive market for themselves while protecting consumers. The most obvious point providers will have to work through is how to price an existing annuity to be sold on.

Existing customers may be enticed to the cash paid out from selling their annuity so that they could potentially reallocate part, or all to another retirement income proposition. However, customers also need be aware that they may not be offered what they paid for the annuity. There are likely to be costs and risks involved as with any long-term financial planning decision.

What the Budget announcements will likely do is further the demand for advice – this will be advice for, and in the digital age. So how do LP&I firms re-think ‘digital advice’ and reorganise their workforces to support all these demands? This is something the industry will have to think about soon.

While the consumer protection agenda forges ahead there is still work to be done:

  • Consumers – existing customers and consumers should be proactively engaged with their long-term financial planning, especially in the wake of recent and on-going changes to pensions freedom, savings allowances and tax treatments.
  • LP&I industry – further simplification of long-term savings propositions to allow new and existing customers to engage with the industry and enhance value of their lifetime.
  • Regulators and Government – allowing for proposed changes to be realistic for the industry to implement so that customers are adequately protected.

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