18 October, 2016
Thousands Of People Will Feel Let Down By Government Decision To Abandon Secondary Annuity Market
Major disappointment for thousands of people: The Government’s decision not to proceed with its proposals to allow people to sell back their annuity income will come as a major disappointment to thousands of people. Many have been waiting anxiously for the opportunity to undo the annuity they were forced to buy and will feel let down by today’s announcement that the secondary annuity market is being scrapped.
Many will be stuck for the rest of their life with an annuity they never wanted: This was never likely to be a huge market, but for some individuals it would have been a potential lifesaver. Those who bought an annuity because they were forced to do so, but would not have purchased one unless the law required it, have been waiting desperately for an opportunity to sell it but that opportunity is now being taken away from them.
Consumer protection is, of course, vital but the Government announcement of another overhaul of financial guidance has meant PensionWise cannot now help people before April 2017: Of course it is vital that consumer protection is put in place to help people understand the value for money they would be offered, but that was going to be offered by financial advisers and PensionWise. The Government’s most recently announced overhaul of financial guidance has made the Pension Wise route impossible because the whole guidance landscape is now up in the air. PensionWise Guiders were waiting to be trained to give the guidance for people before the secondary annuity market started in April 2017, but the latest announcement of further rethinking of the Government’s free help for customers has resulted in today’s decision.
Being able to sell the annuity would be better for many than being stuck with a small lifetime income, with no inflation or spouse protection: The Treasury says that only 5% of annuity holders would want sell back their annuities but this is still a huge number of people. Around 600,000 annuities were being sold each year and most of these products offered no protection against inflation and did not ensure a spouse would be covered. Some of those buying annuities would have had other pensions, many from a final salary-type scheme, so they did not need this extra guaranteed income but had to buy it because that was the law at the time. Unless they had very large pension funds, they had no choice but to buy an annuity, whether they wanted to or not. 5% of those buying annuities amounts to around 30,000 people a year who might want to exchange their small annuity income for a cash lump sum. In many cases, the annuity that they bought has no inflation protection and does not provide for their spouse, whereas having the cash would allow them to make provision for their partners or repay debts.
This aspect of pension freedoms is being abandoned and will leave many disappointed: It is a shame that this aspect of the pension freedoms is being abandoned and that the overhaul of pensions guidance seems to have undermined a potentially valuable service for people who will now be stuck for life with an annuity that they did not want to buy and may not be the most suitable product for their retirement needs. It was never going to be a huge market, but for some people it would have been a real benefit to be able to undo their annuity.