Secondary annuity market ‘likely first casualty of Brexit overload’

Parliament-UK-London-Building-Fog-700x450.jpgPolicymaking is largely on pause as Brexit overload burdens Whitehall – the secondary annuity market looks likely to be the first casualty, reports John Greenwood

Life insurers are remaining tight-lipped about what Brexit means for the sector. With L&G’s share price falling 30 per cent in the two days after the vote, Standard Life falling 27 per cent and Aviva down 22 per cent, insurers have been some of the hardest hit stocks on the index. Hargreaves Lansdown fell 24 per cent over the period, showing it’s not just insurers feeling the pain.

One life office source suggests that in operational terms the Brexit vote is not as significant a shock as a vote for Scottish independence would have been.

More significant is the impact on forward planning – and whether government departments and Parliament itself will have the time to deal with day-to-day projects.

Another insurer lobbyist reports that with civil servants in all departments to be swamped with EU exit planning, current and planned initiatives could now be sidelined, effectively stifling strategic development for providers. Some dropped policies will be welcome, others less so.

This Brexit overload puts a question mark over key policies such as the secondary annuity market, the Lifetime Isa, the Pensions Bill, the pensions dashboard and exit charges.

Similarly, future increases to pension contributions, on most pensions stakeholders’ wishlist for the 2017 auto-enrolment review, could also be kicked into the long grass.

“For me the number one most likely project to be dropped is the secondary annuity market. There is no love in the room for the secondary annuity market, either amongst providers and advisers, or in government. I would give it an 80 per cent chance of getting kicked into the long grass,” says Aviva head of policy, retirement solutions, John Lawson.

“The Lifetime Isa could also have the plug pulled on it. It hasn’t come in yet and it has got George Osborne’s name on it,” says Lawson. “So there has to be a chance it could go.”

Three days ago the Association of Professional Financial Advisers called for the policy to be put on hold because of low appetite amongst advisers to enter the market as a result of market volatility.

But Just Retirement group communications director Steve Lowe disagrees. Lowe says: “The launch date is 9 months away and the Treasury and the DWP have done a significant proportion of the legislative work needed to make this a reality. I believe we have the ability to get this over the line to meet the significant interest in this from consumers.”

Industry sources do predict however that the pensions dashboard will continue to be developed, not least because the main active players in the market actually want it to, and because the technology more or less already exists to achieve it.

Meanwhile there is a widespread expectation that tax changes will be on the agenda in the event that Brexit does go ahead in a way that means the UK’s fiscal position is challenged.

“If we find our GDP figures are going through the floor and our tax revenues with them, then the knives will be out to make cuts. There won’t be any consultation. It will just be imposed. And pensions tax relief will be right near the top of the list,” says Lawson.

“Brexit will have a significant effect on the UK tax system in the medium term. However, much of what makes our tax system one of the most competitive in the world will remain post-Brexit, regardless of the terms of Brexit. We will retain a substantial tax treaty network, a generous exemption from tax on dividends, one of the lowest corporation tax rates in Europe and, for now at least, generous tax deductions for interest,” says Berwin Leighton Paisner partner, head of corporate tax Elizabeth Bradley, who urges the Government to do all it can to protect businesses from tax increases.

“Although some of these benefits may change if the public finances worsen, they are generally within our control and any future government would be wise to retain them to preserve our competitiveness.”