Consultation Response
Department for Work and Pension Consultation:
Creating a secondary annuity market
The Law Society of Scotland’s response
June 2015
© The Law Society of Scotland 2015
Introduction
The Law Society of Scotland aims to lead and support a successful and respected Scottish
legal profession. Not only do we act in the interests of our solicitor members but we also
have a clear responsibility to work in the public interest. That is why we actively engage and
seek to assist in the legislative and public policy decision making processes. To help us do
this, we use our various Society committees which are made up of solicitors and nonsolicitors to ensure we benefit from knowledge and expertise from both within and out with
the solicitor profession.
The Pensions Law Sub-committee of the Law Society of Scotland (the committee),
welcomes the opportunity to consider and respond to the Department for Work and Pension
consultation Creating a secondary annuity market.
The committee has the following comments to put forward:
Comments
Paragraph 2.19 to 2.22. Ceasing payments and death of the annuitant.
Given that the annuity provider may be less likely to receive a timeous notification of death,
then we would suggest that the provider needs protection against scheme sanction charges
for unauthorised payments of annuity.
We note that the current protection lasts 6 months
after the death and this, in our view, would be inadequate. We would suggest that there is
a strong argument that there should be an exemption if the failure is related to an assigned
policy.
Paragraph 2.23. Annuity provider costs.
In relation to consent to assignation, we note that the paper acknowledges that annuity
providers might have concerns about agreeing to assignations without express consent
from named secondary beneficiaries. Insurers may also be troubled about agreeing to an
assignment when this is contrary to a prohibition that was included in the policy wording in
accordance with the statutory requirements at the time and at the express request of the
trustees who proposed for the policy.
© The Law Society of Scotland 2015
We would suggest that the UK Government
Page | 1
considers including an overriding ‘permissive’ provision that allows an annuity provider to
consent to an assignation (along the lines of the flexibility ‘permissive’ provision).
Given that it is intended to prohibit the assignation of pensions (that are not secured by an
annuity) and annuities held by the trustees, trustees may be uneasy about agreeing to
policy terms that allow an annuitant to do so outside of the scheme. This could be covered
by altering the legislation to expressly allow trustees to agree to these policy terms.
Paragraph 2.27.
In relation to joint annuities, the consent of secondary annuitants may also be an issue for
cases where the reversionary annuity goes to the ‘spouse at date of death’ which is a
requirement for contracted-out benefits such as GMP.
Annuities can also continue to
young children and disabled children.
Paragraph 3. Legislative changes
We agree with the consultation, that the main impediment to assignation is in the tax rules
and some DWP secondary legislation.
There are however other DWP pensions law
provisions that need to be considered including section 159 of the Pension Schemes Act
1993 (prevents assignation of guaranteed minimum pensions), section 91 of the Pensions
Act 1995 (prevents assignation of pension rights under a scheme (and, by implication
requires the trustees to follow that through into the terms of immediate annuities in the
pensioner’s name)) and section 19/81 of the PSA93 (covering buy-outs).
Paragraph 3.3.
Concerning the status of the purchase price received by the annuitant, the purchase price
would be paid to the individual after deduction of tax. To the extent to which the payment is
paid into the registered pension scheme, the tax would not apply but the payment into the
registered scheme is not a contribution or a transfer payment.
From the scheme’s
perspective, it is akin to a drawdown to drawdown TV except that it comes from the
individual (via the buyer).
© The Law Society of Scotland 2015
Page | 2
Where the payment goes into a registered pension scheme, the tax legislation would work
(subject to the above point) but there is a potential issue if the monies went straight into a
flexible annuity as it would not be a registered pension scheme in its own right.
The
potential issue is whether or not the insurer can apply the premium to its pension business
fund under sections 57 & 58 of the Finance Act 2012.
Consumer Protection, Chapter 4.
Chapter 4 relates to consumer protection and we note that the proposal is made to
introduce the requirement for compulsory advice.
We would suggest that the model for
compulsory advice is a new one and the benefits of this have still remain to be considered
and it is a model untested in the context of DB transfers. We would suggest that further
evidence and research should be collated and considered to establish if this model does
indeed provide any consumer protection.
© The Law Society of Scotland 2015
Page | 3
For further information and alternative formats, please contact:
Brian Simpson
Law Reform
DD: 0131 476 8184
E: briansimpson@lawscot.org.uk
The Law Society of Scotland
Atria One, 144 Morrison Street
Edinburgh EH3 8EX
www.lawscot.org.uk
© The Law Society of Scotland 2015
Page | 4