Summer Budget 2015: Second hand annuity market delayed
Frustrated annuity holders wishing to sell their income will have to put their plans on hold.
In the March 2015 Budget, George Osborne announced that all retirees should be able to take advantage of the new pension freedoms and launched a consultation into the creation of a second hand annuity market. From April 2016 he said that some five million existing policyholders should be able to sell their lifelong income for a cash lump sum.
However, following that consultation, the government now says it needs to delay the launch until 2017 to ensure policyholders are given enough support in making their decision. It will now publish its plans for a secondary annuity market in the autumn as part of the Finance Bill 2016.
Andrew Tully, pensions technical director, Retirement Advantage, said: "There continues to be significant customer risk from the idea of creating a second-hand annuity market.
"The issues are complex so it is right to take stock and provide an appropriate timeframe to consult before the creation of a secondary market. We need to ensure consumers are protected from making poor value decisions, given they could lose 30% or more of their potential income because of costs and upfront tax."
The Association of British Insurers – which represents annuity providers – was also grateful for the delay. Huw Evans, director general for the ABI said:
"The new timetable announced today is a very welcome move and follows strong representations from the industry that the previous timetable was too quick. Providers want the reforms to the secondary annuity market to work for customers and it is right more time is allowed to get the right structures and regulation in place before going ahead."
Association of British Insurers
Established in 1985, the ABI is the trade body for UK insurance companies. It has more than 400 member companies that provide around 90% of domestic insurance services sold in the UK. The ABI speaks out on issues of common interest and acts as an advocate for high standards of customer service in the insurance industry. The ABI is funded by the subscriptions of member companies.
In exchange for any lump sum – usually your pension fund – an annuity is “bought” from an insurance company and provides an income for life. When you die, the income stops. Annuity rates fluctuate daily and depend on your sex (although from 21 December 2012 insurers will no longer be able to use gender as a factor when calculating annuities), age, health and a number of other factors, so you have to pick the right one and, once bought, its terms cannot be altered, so seek financial advice.