Amid fears consumers will lose out, Hargreaves Lansdown has said it won’t facilitate the sale of annuities by pensioners to investors.
Prior to April last year, retirees were obliged to use their pension savings to buy the insurance products that pay a set income for the rest of their life.
The requirement was scrapped after pensioners all too often ended up trapped with poor value annuities.
And from next year policy holders will be able sell their products in return for cash lump sums.
But Hargreaves Lansdown has warned pensioners are set to face a number of risks as a result of the new service.
The provider is concerned pensioners will be unable to assess the value of the income they are giving up – and as a result could end up with a low lump sum of cash.
Many pensioners underestimate how long they will live and could run out of money, warned the broker.
The administration costs of a sale could also eat up a significant sum of the eventual payout.
The provider said vulnerable investors facing financial pressures or poor health are particularly at risk in the secondary annuity market.
Concerns were also raised by the fact that policyholders will not be able to make a partial sale, as were warnings of a possible increase in fraud or scams as a result of the service.
Tom McPhail, head of retirement policy at Hargreaves Lansdown said: “Like the government, we are keen to see as many investors as possible taking on both the freedom and the responsibility to manage their own retirement savings.
“For a small number of investors, selling an existing annuity income in exchange for a lump sum may make sense.
“However ever since this proposal was first made, we have been concerned that for many investors, it is likely to be a poor decision. We have therefore made the decision not to enter the secondary annuity market at this time.”
“We are reviewing whether Hargreaves Lansdown will offer an advisory service to investors who may be contemplating selling their annuity and who are looking for an advisor to consult on the decision.
“We will make a further announcement once we have reviewed the full regulatory and operational considerations involved in this market.”
The Government has previously confirmed that pensions with annuities over a certain value – not yet set – will have to take financial advice before being able to sell their annuity.
The Financial Conduct Authority (FCA) has today launched a consultation over how the Government’s Pension Wise service will support the secondary annuity market.
Mr McPhail added: “For anyone not paying for advice before selling an annuity, a consultation with Pension Wise should be mandatory.
“The particular risks in this market are such that an independent sense-check from either a qualified adviser or from Pension Wise is a small inconvenience for the small number of investors who are likely to go ahead with such a transaction.”