StratNav

Especially:

• Impaired lives who were not underwritten and accepted standard rates at the original point of purchase, but are underwritten and offered reduced rates at the point of secondary sale may initiate a misselling claim in respect of the original purchase. Where underwriting can be used to offer a better annuity payout, this may be preferable to providers over the alternative of buying out and cancelling the policy.
• Distressed sellers who later realise that they sold their annuities for less than they might subsequently think they were worth may initiate a misselling claim in respect of the secondary sale. 

The secondary market in annuities is due to open in April 2017. There are an estimated 5m annuities presently in force. The proceeds of an annuity sale will be taxed at the recipient's average rate of taxation (I think...)

Some 500k of annuitants could try to cash in their annuities.

Some will be disatisfied with the price they are offered. Particularly where this is significantly below what they paid, this may trigger a miss-selling claim for the original sale. There are a number of factors which might make the sale price unattractive compared to the original purchase price:

1. current interest rates are likely lower than they were at the point of original purchase
2. an annuity purchase would likely re-underwrite the annuitant. Where the annuitant was not, but should have been underwritten at the point of original purchase, or where their health has subsequently deteriorated, the purchaser will likely offer a lower rate. (Although, of course, this category of person is likely to be relatively better off by selling their annuity).

By contrast, increasing life expectancy might make it more attractive for purchasers to offer a higher price for annuities.

In all case, information asymmetry between the seller and purchaser will inevitably leave the seller at a disadvantage.

Where the original sale was on standard rates, and not underwritten, but it turns out that the annuitant is/was a smoker and probably could have got an enhanced rate originally, and where the prospective purchaser then does underwrite the annuitant and determines that they are a poor life, the relative price from initial purchase to subsequent sale is likely to be particularly marked.

Others will accept the price offered and subsequently realise that it was not a good deal and pursue misselling  on the secondary sale.

Sales of a nnuities worth more than a not yet specific amount will have to be advised, with the cost of the advice acting as a deterrent. But who (scrupulous) would advise on such a sale.

Where an annuitant has sold their annuity, they have little, if any incentive to advise the annuity provider of any chance of address, making it harder, if not impossible for the provider to determine if the original annuitant is still alive.

Is there an opportunity for providers to offer to underwrite lives retrospectively and increase the amount of the monthly annuity payment as an alternative to cashing the annuity in (or would the create an anti-selection problem in the rest of the book)?