The Government has announced that it will no longer be introducing a secondary annuities market – a system whereby consumers could exchange an existing annuity for a cash lump sum. It says that it would not be able to guarantee an appropriate level of consumer protection were the scheme to be introduced.
When the Government first announced new freedoms regarding the ways retirees could access their pension savings, people already receiving annuities were excluded, i.e. they had no option but to continue receiving a sometimes poor-value annuity.
George Osborne MP then later announced plans to allow around five million existing annuitants to sell their annuities to providers in exchange for a lump sum from April 2017. It would appear however that Mr Osborne’s successor as Chancellor, Philip Hammond MP, is less keen on the idea.
The Government press release says that “many firms have shown they are willing to allow customers to sell their annuities, but the government is clear that there will be insufficient purchasers to create a competitive market.”
Press reports suggest that the decision of one of the UK’s largest brokers, Hargreaves Lansdown, not to facilitate deals in the secondary annuity market, dealt a fatal blow to the Government’s proposals. Insurers Standard Life, Royal London and Aegon had all indicated they were unlikely to enter the market.
Many consumers could also have faced high charges for cashing in an annuity.
The Economic Secretary to the Treasury, Simon Kirby MP, 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 in a market that is likely to be small and limited.
“Pursuing this policy in these circumstances would put consumers at risk – this is something that I am not prepared to do.”
In any case, industry experts were in almost total agreement in saying that cashing in an annuity would only be appropriate for a small number of people.
Douglas Anderson, a partner at pension consultancy 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.”
Rob Yuille, head of retirement policy at the Association of British Insurers, also welcomed the news, as he said:
“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.
“We have highlighted the challenges involved and worked constructively with the Government to try to solve them, but consumer protection has to be the priority.”
Paul Green, director of communications at Saga, expressed his disappointment as he commented:
“This is a surprising announcement. The initial decision to give people the power to sell their annuity was borne from pension freedoms introduced last year and the desire that all retirees could enjoy them. The cancellation of the secondary annuity market quashes that notion.
“There will be many pensioners who will be sorely disappointed – thousands of people who receive minimal income from annuities they were forced to buy would have benefitted from a way to sell their annuity. Indeed, research carried out by Saga found that 58 per cent of people who wanted to sell their annuity were receiving such a small income they could do nothing meaningful with it. It looks now that there will be no way for them to turn that meagre income back into a lump sum.”
The announcement appears to have taken a few people by surprise – only two weeks earlier the Financial Conduct Authority was still conducting a consultation on how it would regulate the secondary annuity market.
The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article.