Fraud risk for pensioners cashing in annuities

Experts warn that new rules for older pensioners could leave them vulnerable to scams

Updated: 
technology, oldness and lifestyle concept - old man in working with laptop computer at home concerned
Experts are warning that pensioners who choose to sell their annuity in exchange for a lump sum will become vulnerable targets for fraudsters. They are urging the government to protect pensioners before the new rules are introduced - and suggest not rushing to bring them in by next April.

The warning comes from the Association of British Insurers, responding to the government's consultation on its plans to allow pensioners who have already bought annuities to sell them and receive a cash lump sum instead. At the moment, the government plans to bring the rules in next April, but the ABI is worried that this isn't a long enough time frame to ensure the rules are implemented in a way that offers enough protection for pensioners.

Complexity

They are concerned about the complexity of the financial decisions facing people, many of whom will be very elderly. It adds: "Many of them will be older people who may be vulnerable due to illnesses and reduced mental capacity."

At the moment, the government and the industry have not established how the second-hand annuity market would work. There are no guarantees that sales wouldn't be subject to high fees - or that people will receive a reasonable value for their annuity. If the market doesn't offer good value for money, a vulnerable person could easily make a poor decision that has a profound impact on the rest of their lives.

Scams and fraud

The ABI is also conceded that this will open pensioners up to the risk of being scammed. We have already seen a spike in the number of new pensioners targeted by criminals once they were entitled to take advantage of pension freedoms.

Older pensioners are already targeted by these criminals. An Age UK survey in April found that 53% of people over the age of 65 have been targeted by fraudsters, and that while many do not respond, of those who do 70% of people of all age groups said that they had personally lost money. The research suggests that a third of older people who responded to a scam may have lost £1,000 or more.

The rule change will mean even more of these older people's assets are at risk, because they could be persuaded to sell their annuity - or hand over the lump sum they have received from a sale.

Steven Cameron, Regulatory Strategy Director at Aegon agrees: "We need a system people can trust, where they get a fair deal and are protected against fraudsters who could target any weaknesses in the system with potentially disastrous consequences, for often vulnerable annuitants."

Dr Yvonne Braun, Director of Long Term Savings Strategy, Association of British Insurers, concluded: "We urge the Government not to rush these proposals through for 2016. Allowing more time will ensure an appropriate regulatory regime can be developed to give this new market a chance to succeed."

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