Posted on October 21st, 2016 | Categories - News
The Government has scrapped plans which would have allowed pensioners to sell their Annuities on the open market, in exchange for a lump sum.
George Osborne originally announced the plans in March 2015, as a way of extending Pensions Freedom to people who had already retired. However, the proposal has been widely criticised, delayed and now been scrapped.
Announcing the decision, a Government statement said: ““After an extensive programme of engagement with industry, financial regulators and consumer groups, the government has decided not to take forward plans to introduce a secondary annuities market because the consumer protections required could undermine the market’s development.”
The statement continued: “Over the past few months, following a wide range of discussions, it has become increasingly clear that 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.”
Whilst many people may have initially been attracted to selling their Annuity, especially if it represented poor value or produced a relatively small income, the Treasury believed only 5% of people would actually take advantage of the change.
There were concerns from the financial services industry too.
Firstly, that people would be tempted in the short term by a lump sum, in exchange for their guaranteed income, which in reality would leave them worse off in the long run.
Secondly, that the number of organisations willing to buy second hand Annuities would have been small, leading to an uncompetitive market with high charges levied on the consumer.
Finally, many people were worried that the second hand Annuity market would attract scammers, tempting pensioners to make poor decisions.
Despite the Treasury saying only 5% of people would take advantage of the new rules, HMRC believe some 300,000 planned to sell their Annuity. The change will therefore potentially lead to thousands of disappointed pensioners; or, depending on your point of view, better off, as they would have, in all likelihood, received a poor deal.
Ros Altmann, the former Pensions Minister, and now a member of the House of Lords, said: “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.”
She continued: “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.”
As an aside, the plans would also have raised nearly a billion pounds in tax over the next two years.
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