Government makes U-turn on pension annuities
Concern over lack of consumer protection leads Treasury to abandon scheme
The government is to scrap plans to allow pensioners to cash in their pension annuities in exchange for a lump sum, saying they could not guarantee sufficient consumer protection, the Treasury has announced.
The plans, revealed in the March 2015 budget by then-chancellor George Osborne, were designed to extend greater pension freedoms to the roughly five million people who were committed to annuities they had already brought.
The government had initially confirmed the scheme would to be introduced in April 2017, but the Treasury has now cited a limited and unstable market as a reason for abandoning the idea. It said: “Creating the conditions to allow a vibrant and competitive market to emerge, with multiple buyers and sellers of annuities, could not be balanced with sufficient consumer protections.”
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 I am not prepared to do.”
The industry’s response to the announcement has been mixed. In an interview with the BBC, former pensions minister Ros Altmann said the U-turn was a missed opportunity. “It will be disappointing to tens and thousands of people who bought an annuity they didn’t want and didn’t need,” she said.
However, other experts said the government has made the right decision. “All the signs were the secondary annuity market would have been a pension freedom too far,” said Steven Cameron, pensions director at Aegon UK. “Giving up a guaranteed income for life is a huge decision and, while a small minority of people might have benefitted, this would not have been right for the vast majority, opening them up to making decisions they might later regret.
“The secondary annuity market would have offered those with existing annuities similar freedoms, but they also created many risks that could have led to individuals ending up worse off. While it seems odd to argue against ‘freedoms’, sometimes these come at huge personal risk and it’s the government’s job to set policies that work for the greater good.”
Jonathan Watts-Lay, director of financial education provider Wealth at Work, said: “We are pleased that the government has decided to drop this. We were concerned that, at best, individuals would get a poor deal in terms of what providers would give them – certainly a lot less than they originally paid for them. At worst, it could have become a scammers’ charter.”
Story via – http://www.cipd.co.uk/pm/peoplemanagement/b/weblog/archive/2016/10/20/government-makes-u-turn-on-pension-annuities.aspx