Plans to let retirees sell their pension incomes in return for cash have been scrapped, the government has announced.
The proposals would have allowed as many as five million retirees with annuities to sell them on through a secondary annuity market.
It would have been a lifeline for savers trapped for life in poor-value deals. Some pensioners are getting only a few pounds a week where a lump sum would be much more useful.
Annuities are a product that pays a regular retirement income for life and are bought by workers on retirement with their pension funds.
They have long been criticised for being poor value and producing a meagre income.
However, fears had been raised that it would be difficult for pensioners to get a good deal through a secondary annuity market.
Fees would likely have gnawed away at the value of any payout they received, and many may have found themselves even worse off.
Pension reforms introduced last year mean that savers no longer have to buy one of these products.
They now have much more freedom to spend their retirement funds as they choose, with many opting to take out only as much as they need at any time and keeping the rest invested.
However, those who have already bought an annuity cannot benefit from these new freedoms – this is why a market for secondary annuities had been proposed by the former Chancellor George Osborne.
The backtracking by the Treasury could be seen as a kick in the teeth for the former Chancellor as his proposal is ditched.
It also suggests that the Treasury does not have any qualms about going against proposals made by the former Chancellor, creating greater uncertainty as the new Chancellor Philip Hammond prepares for his first Autumn Statement next month.
The Treasury announced today that after a ‘wide range of discussions’ it found there were not enough firms interested in buying up old annuities to create a competitive market.
The Economic Secretary to the Treasury, Simon Kirby, said: ‘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 Treasury added that ‘for the majority of people keeping their annuity incomes will be their best option’ and estimated that only five per cent of people who currently hold an annuity would take advantage of this reform.’
Paul Green, director of communications at Saga, said: ‘This is a surprising announcement. The initial decision to give people the power to sell their annuity was borne from pension freedoms introduced last year and the desire that all retirees could enjoy them. The cancellation of the secondary annuity market quashes that notion.’
He added: ‘There will be many pensioners who will be sorely disappointed – thousands of people who receive minimal income from annuities they were forced to buy would have benefitted from a way to sell their annuity. Indeed, research carried out by Saga found that 58 per cent of people who wanted to sell their annuity were receiving such a small income they could do nothing meaningful with it. It looks now that there will be no way for them to turn that meagre income back into a lump sum.’
Richard Parkin, Head of Pensions Policy at Fidelity International, added: ‘We welcome this news. While we could understand the thinking behind this, this looked set to be complex with customers struggling to achieve good value and very few people set to see any true benefit.
‘We would urge the Government to focus its attentions on ensuring the success of auto-enrolment and creating a coherent system of incentives to save for retirement.’