It was last year when the Treasury announced plans to allow millions of pensioners to sell their annuities for cash. (1)The idea was to stop elderly savers being locked into lifetime annuity deals which were set to pay them tiny annual incomes. The “secondary annuity market” was due to open next April giving those locked into record-low rates the chance to raise cash to spend as they saw fit or invest elsewhere (2).
However the scheme has now been dropped over concerns that pensioners could have faced hefty charges when they tried to cash in their annuities. Regulators had warned that charges of up to 20% could be passed on to those trying to cash in their pension (3). With such warnings there was real fear that the policy could have resulted in “the next big mis-selling timebomb” (1).
The move also followed announcements made by a number of pension firms that they wouldn’t take part in the new secondary annuity market. These firms included Standard Life and Royal London who said they had no plans to buy annuities and LV= said it had no plans to purchase them from other policyholders (3).
Reaction to the scheme being scrapped has been mixed with some pensioner action groups expressing concerning for those locked into poor annuity deals while others pointed out that policy was flawed from the start and needed to be scrapped (3).
Douglas Anderson from Hymans Robertson said: “While some retirees may feel a sense of disappointment as they feel trapped in a product they didn’t want to buy, in reality, getting value for money from cashing in annuities would have been a tall order” (2).
The Treasury explained its decision to scrap the policy by saying the level of protections required to protect consumers would undermine the market and make it unviable. Simon Kirby from the Treasury, said: “Allowing consumers to sell on their annuity income was always dependent on balancing the creation of an effective market with making sure consumers are properly protected. It has become clear that we cannot guarantee consumers will get good value for money.” (3)
Rob Yuille, head of retirement policy at the Association of British Insurers commented: “This is the right decision for the right reasons. The industry has consistently supported the freedom and choice reforms, but we agree with the Government that the secondary annuity market came with considerable risks for customers, including from unregulated buyers” (1).