18th October 2016
The Government has abandoned plans to allow the sale of second hand annuities from next April. Pension experts had already warned that a resale market could prove extraordinarily complicated particularly in terms of safeguarding consumers and making sure they achieved a fair price for their annuity.
Hargreaves Lansdown recently said it would not operate as a broker in the market due to concerns about consumer protection.
Economic secretary to the Treasury Simon Kirby 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. The government has always been clear that for the majority of people keeping their annuity incomes will be their best option, estimating that only 5% of people who currently hold an annuity would take advantage of this reform.”
AJ Bell senior analyst Tom Selby says: “The plans for a secondary annuity market were always riddled with problems. The market would have been stacked in favour of the buyer and posed unacceptable risks to savers, who could have seen the value of their pot ravaged by charges. Pension scammers would also inevitably have seized on the changes to target annuity holders. It was difficult to see a long term market where consumers would have got good value. It’s interesting to note that by ditching this policy, Philip Hammond has binned one of George Osborne’s key pensions pledges. The industry will now wait with baited breath for further announcements from the Treasury ahead of the Autumn Statement, most notably on the future of pensions tax relief.”
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. After extensive research, at the beginning of September Hargreaves Lansdown, the UK’s largest annuity broker announced that it would not be participating in the secondary annuity market. Our reasons for this decision were very similar to the government’s. The risks to the vast majority of annuity holders outweigh the benefits for the small minority who could benefit.”
“This is also perhaps an interesting political change of direction. The pension freedoms were George Osborne’s baby. The secondary annuity market concept was enthusiastically supported by the two most recent pensions ministers. 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.”