For the life industry, fund managers and other financial intermediaries, the budget has kicked off a consultation period with the Treasury over the future look of a new second hand annuity market in which they could have a significant influence over its shape and scope.
The government is looking for the industry to give their views on its plans to prevent current annuity holders from selling their existing contracts back the original providers. It’s open to views on whether retail investors should be prevented from entering the market and on who should be allowed to buy annuity income streams.
The government is also seeking to limit the ability of annuity providers to effectively be able to veto any transaction or charge an unfairly high price to allow an annuity to be sold and is looking for ideas on how to best to police the market.
To date the pension’s industry’s response to the well-flagged move on annuity sales has been to offer a cautious welcome while acknowledging the considerable challenges involved in operating a market and setting the price of an existing annuity.
“We welcome the consultation announced by George Osborne to allow those in retirement to sell their future annuity instalments to a third party in return for a lump sum,” said Tony Stenning, Head of UK Retail at BlackRock,
“However, caution must prevail. We need to ensure this is workable and retirees are adequately protected.”
Andy Thompson, head of sales at Workplace Solutions, a part of the deVere Group said: “With the new freedoms come risks. Pensioners, for instance, may not get good value based on age or state of health, plus there is an enormous potential for mis-selling.”
Saving incentives
The annuity sale plans formed part of a series of changes affecting the pensions industry which included a cut in the lifetime limit for tax-free pension saving to £1m from £1.25m, a tax-free allowance for interest earned on savings accounts, and the introduction of two new tax-free investment savings accounts: the “Fully Flexible ISA” and the “Help to Buy ISA”.
The pension cap limit alone was expected bolster Britain’s coffers by around an extra £600m in tax each year.
Meanwhile the UK chancellor George Osborne focused much attention on tax avoidance schemes with plans to raise £3.1bn in revenues from a host of new measures.
The new rules include further “naming and shaming” powers for HMRC, a review into inheritance tax, and over 20,000 more accelerated payment notices.
Osborne revamped the Disclosure of Tax Avoidance Schemes (DOTAS) regime, adding powers for HM Revenue & Customs to identify users of undisclosed avoidance schemes and publish detailed information about promoters and schemes as well as increased penalties on those who fall under DOTAS requirements.
The government also announced it had closed the Liechtenstein Disclosure Facility (LDF) half a year earlier than expected in order to make room for a “tougher” disclosure facility.
It has also introduced new civil penalties on those who enable evasion so they will face the same penalty as the evader, and will publicly name and shame both evaders and those who enable it. In documents released along with the Budget, HMRC introduced a new strict liability criminal offence on both offshore tax evaders and those who help them.
