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Annuity re-selling plans abandoned by government | Annuity re-selling plans abandoned by government |
(35 minutes later) | |
The government has abandoned plans to let pensioners raise money by selling their annuities to insurance firms. | The government has abandoned plans to let pensioners raise money by selling their annuities to insurance firms. |
The controversial idea was first aired in the March 2015 Budget by the then Chancellor George Osborne as part of his plan for "pension freedoms". | The controversial idea was first aired in the March 2015 Budget by the then Chancellor George Osborne as part of his plan for "pension freedoms". |
Despite deciding last December that the plan would go ahead next April, the government has changed its mind. | Despite deciding last December that the plan would go ahead next April, the government has changed its mind. |
It admitted that too many pensioners might be lured into making the wrong decision. | It admitted that too many pensioners might be lured into making the wrong decision. |
Acknowledging that most people would be best advised to stick with their current annuities, 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." | Acknowledging that most people would be best advised to stick with their current annuities, 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. | "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," he added. | "Pursuing this policy in these circumstances would put consumers at risk - this is something that I am not prepared to do," he added. |
Bad deal | Bad deal |
The government's plan was controversial from the start. | The government's plan was controversial from the start. |
Critics pointed out that anyone among the estimated five million people with annuities who sold them would almost certainly receive a poor deal. | Critics pointed out that anyone among the estimated five million people with annuities who sold them would almost certainly receive a poor deal. |
The passing of time would mean that they would inevitably get poor value, receiving far less than they paid. | |
Insurance firms willing to buy second-hand annuities, and brokers willing to arrange the deals, would charge for their services, eroding the value of the annuity sale. | Insurance firms willing to buy second-hand annuities, and brokers willing to arrange the deals, would charge for their services, eroding the value of the annuity sale. |
They would also insert a margin for error in their favour, thus eating further into the value of a pensioner's annuity. | They would also insert a margin for error in their favour, thus eating further into the value of a pensioner's annuity. |
Last April, the Financial Conduct Authority underlined these concerns, saying that a new "secondary" market in annuities would mean a "significant risk of poor outcomes for consumers". | |
The regulator said that annuities were "inherently difficult for consumers to value, and consumers who will be able to participate in this market will include a higher proportion of older, more vulnerable consumers". | The regulator said that annuities were "inherently difficult for consumers to value, and consumers who will be able to participate in this market will include a higher proportion of older, more vulnerable consumers". |
Tom McPhail, of Hargreaves Lansdown, one of the UK's biggest annuity brokers, said the government's decision was right. | Tom McPhail, of Hargreaves Lansdown, one of the UK's biggest annuity brokers, said the government's decision was right. |
"After extensive research, at the beginning of September [we] announced that we would not be participating in the secondary annuity market." | "After extensive research, at the beginning of September [we] announced that we would not be participating in the secondary annuity market." |
"The risks to the vast majority of annuity holders outweigh the benefits for the small minority who could benefit," he pointed out. | "The risks to the vast majority of annuity holders outweigh the benefits for the small minority who could benefit," he pointed out. |
'Meagre income' | |
Last year, the government enacted separately one of the biggest changes yet seen to the pensions industry. | |
It let people at retirement spend any accumulated pension pot entirely as they saw fit, including, as the then pensions minister Steve Webb said jokingly, spending the lot on a Lamborghini sports car. | |
The re-selling of annuities would have been a follow-up policy, aimed at giving some flexibility to those who felt they had been forced in the past into buying poor value annuities. | |
As such the idea was supported enthusiastically by previous pension ministers such as Mr Webb and Ros Altmann. | |
Saga, the insurance firm that targets the over-50s, said it was disappointed by the government's U-turn on the policy. | |
"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 benefited from a way to sell their annuity," said Paul Green, of Saga. | |
"Indeed, research carried out by Saga found that 58% 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," he added. | |
That view was contradicted by Tom Selby, at stockbrokers AJ Bell. | |
"The plans for a secondary annuity market were always riddled with problems," he said. | |
"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." |