Government scraps plans to allow retirement annuities to be sold on
Plans to allow people to be able to sell on their retirement annuities have been scrapped by the Government because consumers could not be guaranteed that they would get good value for money.
Due to be launched in April 2017, the planned changes would have freed up people to sell their annuity income if they wanted to, without tax restrictions that currently apply, as long as their annuity provider agreed.
But the Treasury pulled the plug on the plans after speaking to the industry, regulators and consumer groups. It said it was not willing to allow a market to develop which could produce poor outcomes for consumers, such as receiving poor value for their annuity income and suffering higher costs.
Experts said pensioners hoping to break free from annuity deals would be "sorely disappointed".
But many welcomed the Treasury's decision, saying the plans could potentially have led to a "misselling timebomb" and given fraudsters new opportunities to con people out of their retirement income.
Annuities give pensioners a certain, guaranteed level of income, but they have been controversial in recent years due to low rates giving people disappointing incomes.
However, the regular income provided by annuities does give people the security of knowing they will not out-live their savings.
The Government previously said the planned move would open up new freedoms to around five million people who currently have an annuity, as well as future annuity holders.
It would have offered people who already hold an annuity similar freedoms to those approaching retirement, who are no longer required to buy an annuity with their pension pot following the freedoms launched in April 2015.
The 2015 retirement freedoms did not apply to those already locked into an annuity.
The Treasury said that while many firms were willing to allow customers to sell their annuities, there would not be enough buyers to create a competitive market.
David Newman, head of pensions at Close Brothers Asset Management, said: "A secondary annuity market had the potential to be the next big misselling timebomb, given the sheer scale of consumer protection issues it would generate."
Steven Cameron, pensions director at Aegon, said: "All the signs were the secondary annuity market would have been a pension freedom too far."
Richard Parkin, head of pensions policy at Fidelity International, also welcomed the Treasury's decision, saying: "This looked set to be complex, with customers struggling to achieve good value."
Tom Selby, a senior analyst at AJ Bell, said p ension scammers would "inevitably have seized on the changes to target annuity holders".
Rob Yuille, head of retirement policy at the Association of British Insurers (ABI) said: "This is the right decision for the right reasons."
But Paul Green, director of communications at Saga, said many pensioners will be "sorely disappointed".
He said: "Indeed, research carried out by Saga found that 58% 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."
In September, Hargreaves Lansdown said it had decided against offering a broking service allowing investors to cash in their retirement annuities when the planned scheme launched next year.
The fund supermarket was concerned that for many investors, selling their annuity in exchange for a lump sum would be a "poor decision".
Tom McPhail, head of retirement policy at Hargreaves Lansdown, said : "This will no doubt come as a disappointment to some annuity holders who were looking forward to restructuring their retirement income, however it is the right decision."
Mr McPhail said the pension freedoms were former chancellor George Osborne's "baby".
He said: "The fact that it has now been dropped could be indicative of a new government which is progressively shedding the legacy policies of the Cameron/Osborne era and is increasingly pursuing its own agenda."
The Government said it had always been clear that for the majority of people, keeping their annuity incomes would be their best option.
Economic Secretary to the Treasury Simon Kirby said: "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."
Baroness Kramer, Liberal Democrat Treasury spokeswoman, said: "This is a massive U-turn from a government in total disarray.
"Clearly the Conservatives no longer believe in giving people the freedom to choose what they do with their pensions.
"Millions of people who had been planning to take advantage of these new freedoms, created under former Lib Dem pension minister Steve Webb, have now had the carpet pulled out from underneath them. They are owed an explanation and an apology.
"This Government doesn't trust people to have a say on a final Brexit deal, and now apparently doesn't trust them with their own money either."
Former pensions minister Baroness Altmann said the decision will come as a major disappointment to thousands of people.
She said: "Many have been waiting anxiously for the opportunity to undo the annuity they were forced to buy and will feel let down by today's announcement that the secondary annuity market is being scrapped."
Shadow work and pensions secretary Debbie Abrahams said: "This U-turn is yet another example of Tory chaos over pensions, cancelling plans for a market for secondary annuities a few months out from its expected implementation.
"Only last week, the Office for Budget Responsibility stated that Tory pension reforms had blown a £5bn hole in the public finances by reducing incentives to long term saving. The Tories have no answers to the problem of providing proper security in retirement. Only Labour can be trusted to protect people's pensions."