The government has ditched plans to create a secondary market for annuities, which would have allowed pensioners to sell their retirement income for a lump sum.
The secondary market for annuities was first devised by Chancellor George Osborne in the 2015 Budget, and was intended to launch in April 2016. However, in July last year complexities in establishing the scheme emerged, and the launch date was postponed to April 2017.
Last month, Moneywise reported how the secondary market may not be viable due to insurers shying away from involvement.
But following an “extensive” period engaging with the industry, consumer interest groups, and financial regulators, the government has today announced it would be too complicated to set up adequate consumer protections for people looking to cash in on their pensions.
Several firms indicated they would be willing to let people in receipt of an annuity to cash in, though not enough companies would have been interested in buying these incomes for the market to be viable.
Simon Kirby, economic secretary to the Treasury, says: “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 estimates that just one-in-twenty pensioners with an annuity would look to cash in their regular income for a lump sum.
Following the announcement, pension and investment companies welcomed the news, warning of several practical risks with allowing people to sell a guaranteed income.
Tom Selby, senior analyst at AJ Bell 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.”
Tom McPhail of Hargreaves Lansdown adds that many people underestimate how long they’ll live, and could be at greater risk of running out of money if they were to sell their annuity income.
However, Paul Green, communications director at Saga, warns that people looking to cash in tiny pensions, in some cases worth just pennies a week, may be disappointed by the announcement.