The UK’s rollout of a secondary market for annuities should be accompanied by the launch of a bidding platform, allowing for a more transparent sales process.

The call for a bidding platform came as the UK Treasury confirmed a new secondary market would be in place from April 2017 rather than 2016 as initially planned, and that it would amend tax rates so that annuitants would only incur tax in line with their marginal rate.

Pensions minister Ros Altmann stressed that, for the majority of annuitants, keeping the policy would still be the right decision.

“But some were forced to buy annuities in the past that may not have been suitable for them,” Altmann said, “and I am delighted this reform will allow more people greater choice and the opportunity of a more flexible income stream.”

As part of the reform, which follows the new flexible drawdown of savings within defined contribution (DC) pots, up to 5m people will be able to sell their annuity on to a third-party provider regulated by the Financial Conduct Authority (FCA), or sell it back to the initial provider, creating a market worth as much as £13.3bn (€18.4bn) a year.

The government noted calls from the industry that sales back to the initial provider should only be indirect, or after a competitive price had been agreed.

But it did not directly agree that an intermediary bidding platform should be launched to facilitate such an anonymous process.

Pinsent Masons senior associate Rob Lawrence said the government should give “strong consideration” to launching such a platform.

“This would enable the individual to obtain a number of ‘bids’ for his annuity without having to approach a number of providers separately,” he said, noting that it would also help mitigate the risk of individuals receiving poor value for money.

The importance of having access to suitable advice, which the government hopes to address by extending the remit of Pensions Wise – the agency set up to offer advice to pensioners about the drawdown of their DC pot.

Ben Roe, partner at Aon Hewitt, said the FCA would have a “big role” in ensuring the market worked correctly.

“If it is difficult for individuals to obtain the advice they need, then there is a real risk the market will not develop, and all the effort involved in getting this new initiative off the ground could be wasted,” he said. 

Others, such as Hymans Robertson partner Douglas Anderson, warned that the administration of a secondary market would be “incredibly complex”.

Anderson also welcomed the fact providers would be able to buy back their own policies.

“This will definitely make it easier to establish a more competitive market, as the original providers may be able to offer better terms due to the expense and capital savings of cancelling the original policy,” he said. 

He also suggested that the FCA could learn from how current bulk annuity deals used simplified underwriting procedures to inform the proposed online tool allowing annuitants to assess the value of their policy.