OREANDA-NEWS. The UK government's reported plan to allow pensioners to sell their annuities will not affect the credit profile of insurers, but the complexity of pricing and managing transactions suggests any secondary market may remain small, Fitch Ratings says.

According to several media reports, the government intends to let pensioners sell the income stream from their annuity for a cash lump sum, but importantly it will not force insurers to buy back customers' annuities. This means when an annuity is sold the original provider will not have to unwind the product and the only change would be who it makes the payments to.

In principle, some insurers may be interested in offering to buy individual annuities from pensioners, because in the current low-yield environment they are keen to take on a little more risk in order to boost returns. This can be seen, for example, in the growth of the bulk annuities market, where insurers write annuities to cover all or part of large pension schemes.

But individual annuity purchases are likely to be complex, difficult to price and often involve relatively small sums, so it will be hard for insurers to offer a price that sellers are likely to find attractive. For example, the buyer will only continue to receive the annuity for as long as the seller is alive, so the buyer will have to be confident it has a full picture of the seller's health to come up with an accurate price.

Because selling an annuity would be entirely voluntary, annuity holders who decided to go ahead with a sale could on average have a lower life expectancy, further reducing the price insurers would be willing to pay. Further complications would arise over how a buyer could keep track of the original annuity holder, or how to handle joint-life annuities, which continue to make payments to a surviving partner.