Annuity cashing in abandoned
Discussion
PurpleMoonlight said:
Totally agree!By the way, what a nasty, inaccurate and emotive article from The Mail on the topic!
Edited by sidicks on Wednesday 19th October 06:14
55palfers said:
Quote from the Mail article
"But insurers have proved reluctant to buy back the annuities – with as few as two in ten major players saying they intended to do so. "
Is that because the Insurance companies realise they are on to a sure-fire earner and don't want to hand back the cash?
Not so sure that's why."But insurers have proved reluctant to buy back the annuities – with as few as two in ten major players saying they intended to do so. "
Is that because the Insurance companies realise they are on to a sure-fire earner and don't want to hand back the cash?
These days people are deemed not sufficiently responsible to manage their own money.
It's one thing to take all a defined contribution pot at one go, but something completely different to surrender a guaranteed income for life while drawing that income for a one off payment. The FCA compliance for the latter would likely be nightmare for all involved.
The pension freedoms supposedly allowed occupational defined benefits to be transferred to a drawdown arrangement, but for those with a TV of over £30,000 it's almost impossible because few IFA's will provide the report the member is legally required to obtain.
PurpleMoonlight said:
55palfers said:
Quote from the Mail article
"But insurers have proved reluctant to buy back the annuities – with as few as two in ten major players saying they intended to do so. "
Is that because the Insurance companies realise they are on to a sure-fire earner and don't want to hand back the cash?
Not so sure that's why."But insurers have proved reluctant to buy back the annuities – with as few as two in ten major players saying they intended to do so. "
Is that because the Insurance companies realise they are on to a sure-fire earner and don't want to hand back the cash?
These days people are deemed not sufficiently responsible to manage their own money.
It's one thing to take all a defined contribution pot at one go, but something completely different to surrender a guaranteed income for life while drawing that income for a one off payment. The FCA compliance for the latter would likely be nightmare for all involved.
The pension freedoms supposedly allowed occupational defined benefits to be transferred to a drawdown arrangement, but for those with a TV of over £30,000 it's almost impossible because few IFA's will provide the report the member is legally required to obtain.
I can see someone in a defined benefit / final salary type of plan would need to be very sure of their position before throwing in the towel, but others who have taken (historically) low annuities in the very recent past may not agree this ban is in their best long term interests.
55palfers said:
Quote from the Mail article
"But insurers have proved reluctant to buy back the annuities – with as few as two in ten major players saying they intended to do so. "
Is that because the Insurance companies realise they are on to a sure-fire earner and don't want to hand back the cash?
Insurers bac these long dated liabilities with appropriate long-dated assets. "But insurers have proved reluctant to buy back the annuities – with as few as two in ten major players saying they intended to do so. "
Is that because the Insurance companies realise they are on to a sure-fire earner and don't want to hand back the cash?
Having to sell those assets incurs transaction costs (plus expenses for the insurer as they have to re-do their Asset-liability management work). These costs would hit the surrender values that could be paid.
Further, most annuities are relatively small - annuity firms can establish some efficiencies (economies of scale) by combining tens / hundreds of thousands of policies and matching the aggregate cash flows that arise. You simply can't buy assets to closely match the future expected cash flows of Fred Bloggs, game 65 from Norwich and his £200 per month annuity.
Finally, it's all about anti-selection. In general, annuities are priced for 'normal' mortality. If you are in poor health you can choose to approach a specialist provider who will undertake full underwriting in order to ascertain your future lifetime and potentially give you a higher annuity (as it will be paid for longer). The expectation must be that those who are in poor health are the ones that would choose to surrender their policies and take the cash instead. Insurers companies would be either forced to underwrite each surrender request (very costly, which would come off the surrender value) or simply assume very prudent (I.e. High) mortality when calculating the surrender value. Either way the surrender value is likely to be very low.
Hence it's massively risky and very difficult from a PR perspective to offer to buy-back annuities.
Edited by sidicks on Wednesday 19th October 12:25
55palfers said:
I'm not convinced.
I can see someone in a defined benefit / final salary type of plan would need to be very sure of their position before throwing in the towel, but others who have taken (historically) low annuities in the very recent past may not agree this ban is in their best long term interests.
Two scenarios:I can see someone in a defined benefit / final salary type of plan would need to be very sure of their position before throwing in the towel, but others who have taken (historically) low annuities in the very recent past may not agree this ban is in their best long term interests.
Either interest rates are lower now than when the annuity was taken out, meaning that the annuity being paid represents 'good' value when compared to the current rates on offer.
Interest rates rate higher now than when the annuity was taken out, meaning that the assets backing the annuity (on which the surrender value will be based) will have fallen considerably, menacing a low (and unattractive?) surrender value?
There are many who would have benefited, it's a shame that a fair solution couldn't also be an equitable solution. Having said that, we've opened the doors for miss sold annuities, and the vast majority of people who would have benefited will have been miss sold anyway. Therefore, the redress process is de facto legislation.
my mum was one, she has around 150k in annuity, pays around 400 per month (I think).
She would have liked the option to change it instead of being locked in, in my eyes the government has flim flamed and instead of making out there would have been a choice, when there never was going to be one..
She would have liked the option to change it instead of being locked in, in my eyes the government has flim flamed and instead of making out there would have been a choice, when there never was going to be one..
Ginge R said:
There are many who would have benefited, it's a shame that a fair solution couldn't also be an equitable solution. Having said that, we've opened the doors for miss sold annuities, and the vast majority of people who would have benefited will have been miss sold anyway. Therefore, the redress process is de facto legislation.
The whole regulatory environment for annuities is based on them being illiquid. Remove that and insurers will be forced to hold much more liquid assets to back them, further reducing yields and worsening the terms of those annuities!And the anti-selection problem is massive.
Goose,
If the government had stuck to its timescale, it may have happened. See if your mum was miss sold it.
http://www.bbc.co.uk/news/business-37653560
If the government had stuck to its timescale, it may have happened. See if your mum was miss sold it.
http://www.bbc.co.uk/news/business-37653560
Ginge R said:
Goose,
If the government had stuck to its timescale, it may have happened. See if your mum was miss sold it.
http://www.bbc.co.uk/news/business-37653560
On what basis would an annuity be mis-sold? If the government had stuck to its timescale, it may have happened. See if your mum was miss sold it.
http://www.bbc.co.uk/news/business-37653560
It provides a guaranteed income for life - it's not that complex or difficult to understand, unlike some other financial service products.
sidicks said:
The whole regulatory environment for annuities is based on them being illiquid. Remove that and insurers will be forced to hold much more liquid assets to back them, further reducing yields and worsening the terms of those annuities!
And the anti-selection problem is massive.
I don't disagree entirely, although I think that aspect is a little overstated because we don't know the numbers. The issue is, if you were incorrectly sold one, how are you going to be encouraged to get help? This is different to PPI. If you were miss sold something aged 25, you can get over it. You can't, aged 65.And the anti-selection problem is massive.
sidicks said:
On what basis would an annuity be mis-sold?
It provides a guaranteed income for life - it's not that complex or difficult to understand, unlike some other financial service products.
Potentially, lots of circumstances. Did a smoker not get an enhanced annuity, did the husband buy a single life annuity? It provides a guaranteed income for life - it's not that complex or difficult to understand, unlike some other financial service products.
Ginge R said:
I don't disagree entirely, although I think that aspect is a little overstated because we don't know the numbers. The issue is, if you were incorrectly sold one, how are you going to be encouraged to get help? This is different to PPI. If you were miss sold something aged 25, you can get over it. You can't, aged 65.
Surely compensation for being mis-sold something is entirely different from having the ability to surrender an annuity?You can have the former without the latter!
Edited by sidicks on Wednesday 19th October 22:31
Ginge R said:
Potentially, lots of circumstances. Did a smoker not get an enhanced annuity, did the husband buy a single life annuity?
Isn't the literature pretty clear on what you get with an annuity?Regardless, in both of these scenarios, this could be addressed by revising the annuity to the 'correct' one!
sidicks said:
Isn't the literature pretty clear on what you get for an annuity?
You have much more faith in financial services than I do.. congratulations.I did a mystery shopper exercise for a rather large annuity provider a few months back (linked to a major charity, you may remember the hoohah). To say I was stunned at what I heard over the phone would be an understatement. If I was a typical OAP, I'd be a lamb to the slaughter.
sidicks said:
Surely compensation for being mis-sold something is entirely different from having the ability to surrender an annuity?
You can have the former without the latter!
Hence my use of the word 'de facto'. Most people who would benefit from surrendering were probably miss sold. If you're just grumbling about your yield though, and, well.. if you were made aware of the facts, you are pretty much beyond help. But if you weren't, then the complaints process fulfils the role of de facto legislation. You can have the former without the latter!
Edited by sidicks on Wednesday 19th October 22:31
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