Pensions minister proposes allowing annuities to be sold
Steve Webb MP has engineered many changes to the pensions marketplace in the UK during his time as Pensions Minister. Now months before the end of the Government’s term of office, he has proposed one more radical idea – allowing holders of annuities to sell their plans in exchange for a cash lump sum.
Pensioners who took out annuities shortly before the Government announced the removal of restrictions on how retirement income is taken may feel aggrieved at having missed out on the new freedoms, and Mr Webb’s ideas appear to be aimed largely at this group.
Mr Webb said:
“I want to see people trusted with their own money wherever possible. I have already heard from people around the country who would like to see this change made. I want to see if we can get these freedoms extended to those who are receiving an annuity, but who might prefer a cash lump sum.”
Annuities are legally binding contracts, so once a customer has made a decision to purchase an annuity, and the cancellation period has expired, the decision is currently irreversible. Mr Webb is suggesting that annuities could instead be sold back to the provider, or on to another customer, but it remains to be seen whether there would be a market for these plans.
Kate Smith, Regulatory Strategy Manager at Aegon UK was one of those to suggest flaws in Mr Webb’s ideas.
“A lifetime annuity is priced on the life and medical conditions of that particular customer. So if it was sold on, the new risks and medical conditions would need to be re-priced in as part of the transaction. This might not turn out to be attractive to either the buyer or seller,”
said Ms Smith.
It remains to be seen whether Mr Webb’s ideas will become Government, or even party policy. Mr Webb, a Liberal Democrat, may also not be Pensions Minister, or even an MP, after the May 2015 General Election. However, he is in negotations with the Labour Party as well as the coalition parties regarding his proposals. Mr Webb has a solid understanding of finance, having worked at the Institute of Fiscal Studies before entering Parliament in 1997.
Annuity sales have plummeted since the new freedoms were unveiled in the 2014 Budget speech, despite the fact that they will remain the only way of obtaining a secure retirement income for life, without having to predict your own life expectancy. According to a report by Iress, after the March 2014 budget, annuity sales in June 2014 were down 58% on the start of the year.
Falls in annuity rates caused by a combination of longer life expectancy and the Government’s previous quantitative easing plan have also dented the popularity of these products.
If Mr Webb’s ideas do not come to fruition, the best option for existing annuity holders may be to investigate whether their annuity may have been mis-sold. Many pensioners either took out the annuity offered by their pension provider, unaware that they could have secured higher returns by shopping around; or else took out standard annuities when their health situation could have allowed them to benefit from an enhanced or impaired life annuity. In these circumstances, customers should complain to the firm that sold them the annuity, and then if necessary appeal the firm’s judgement of the complaint to the Financial Ombudsman Service.
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.