9th January 2015
Vulnerable pensioners may be forced to sell their annuity and lose valuable benefits if plans put forward by pensions minister Steve Webb go through.
Last week Webb announced a consultation on annuity sales, allowing pensioners who have already bought annuities to swap them for cash in an extension of the new pension freedoms coming into play in April.
This is a radical move as annuities have always been non-refundable, meaning the guaranteed income they provide for life could not be traded in for a cash equivalent.
After a series of damning reports by the regulator into the poor value provided by annuities Webb wants to give retired people the option of a lump sum.
However, Kate Smith, regulatory strategy manager at Aegon, has warned that the ability to sell an annuity could leave some older people vulnerable to being taken advantage of.
She called for a level of protection to prevent people giving up valuable guarantees offered by annuities.
‘Selling an annuity undoubtedly has attractions to some people. While the former annuitant would get cash in hand, they would be losing out on the certainty of a guaranteed income,’ she said.
‘I’m concerned that vulnerable customers may be targeted or may voluntarily give up valuable benefits due to pressure put on them by others. Vulnerable customers need to be protected; one way of doing this could be by extending the ‘treatment of vulnerable clients principle’ set out in Industry Code of Good Practice on pension incentive exercises to cover annuity re-selling.’