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Treasury carries out major U-turn on pension annuities Treasury carries out major U-turn on pension annuities | |
(about 2 months later) | |
Plans to allow millions of people to raise money by selling their pension annuities have been scrapped by the government, amid warnings that it could have turned into “the next big mis-selling timebomb”. | Plans to allow millions of people to raise money by selling their pension annuities have been scrapped by the government, amid warnings that it could have turned into “the next big mis-selling timebomb”. |
In a major U-turn, the Treasury said that allowing pensioners to offload their existing annuities in return for a cash lump sum, as proposed by George Osborne when he was chancellor, “would put consumers at risk”, so it had decided to abandon the plans. | In a major U-turn, the Treasury said that allowing pensioners to offload their existing annuities in return for a cash lump sum, as proposed by George Osborne when he was chancellor, “would put consumers at risk”, so it had decided to abandon the plans. |
The announcement comes despite the fact that the government had previously confirmed the change would be introduced in April 2017. | The announcement comes despite the fact that the government had previously confirmed the change would be introduced in April 2017. |
The plans were originally announced in the March 2015 budget, with Osborne saying that he would be extending pension freedoms to around 5 million people who were locked into annuities they had already bought. | The plans were originally announced in the March 2015 budget, with Osborne saying that he would be extending pension freedoms to around 5 million people who were locked into annuities they had already bought. |
The then chancellor said at the time that these people “should have the same freedoms” as those enjoyed by the millions who had benefited from the government’s decision to scrap the requirement to convert a pension pot into an annuity – a product that provides an income for life – and let individuals do whatever they like with their retirement cash. That measure took effect in April 2015. | The then chancellor said at the time that these people “should have the same freedoms” as those enjoyed by the millions who had benefited from the government’s decision to scrap the requirement to convert a pension pot into an annuity – a product that provides an income for life – and let individuals do whatever they like with their retirement cash. That measure took effect in April 2015. |
The Treasury said it was scrapping the plans because it had 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”. | The Treasury said it was scrapping the plans because it had 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”. |
It added: “Consumer protection is a top priority for the government, and we are not willing to allow a market to develop which could produce poor outcomes for consumers, such as receiving poor value for their annuity income stream and suffering higher costs.” | It added: “Consumer protection is a top priority for the government, and we are not willing to allow a market to develop which could produce poor outcomes for consumers, such as receiving poor value for their annuity income stream and suffering higher costs.” |
Simon Kirby, the Treasury economic secretary, said: “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 I am not prepared to do.” | Simon Kirby, the Treasury economic secretary, said: “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 I am not prepared to do.” |
Tom McPhail, head of retirement policy at investment firm Hargreaves Lansdown, said of the new announcement: “The pension freedoms were George Osborne’s baby. The secondary annuity market concept was enthusiastically supported by the two most recent pensions ministers. | Tom McPhail, head of retirement policy at investment firm Hargreaves Lansdown, said of the new announcement: “The pension freedoms were George Osborne’s baby. The secondary annuity market concept was enthusiastically supported by the two most recent pensions ministers. |
“The fact that it has now been dropped could be indicative of a new government which is progressively shedding the legacy policies of the Cameron/Osborne era and is increasingly pursuing its own agenda.” | “The fact that it has now been dropped could be indicative of a new government which is progressively shedding the legacy policies of the Cameron/Osborne era and is increasingly pursuing its own agenda.” |
Shadow work and pensions secretary Debbie Abrahams said: “This U-turn is yet another example of Tory chaos over pensions, cancelling plans for a market for secondary annuities a few months out from its expected implementation. | Shadow work and pensions secretary Debbie Abrahams said: “This U-turn is yet another example of Tory chaos over pensions, cancelling plans for a market for secondary annuities a few months out from its expected implementation. |
“Only last week, the Office for Budget Responsibility stated that Tory pension reforms had blown a £5bn hole in the public finances by reducing incentives to long term saving. The Tories have no answers to the problem of providing proper security in retirement.” | “Only last week, the Office for Budget Responsibility stated that Tory pension reforms had blown a £5bn hole in the public finances by reducing incentives to long term saving. The Tories have no answers to the problem of providing proper security in retirement.” |
Osborne had said that for most people, sticking with their annuity was the right thing to do, but some would welcome being able to sell theirs and receive a lump sum that they could, for example, give to their children or use to pay off debts. | Osborne had said that for most people, sticking with their annuity was the right thing to do, but some would welcome being able to sell theirs and receive a lump sum that they could, for example, give to their children or use to pay off debts. |
However, many in the pensions industry were uneasy about the proposed secondary annuities market, and most commentators welcomed the U-turn – though over-50s specialist Saga said many pensioners would be “sorely disappointed”. | However, many in the pensions industry were uneasy about the proposed secondary annuities market, and most commentators welcomed the U-turn – though over-50s specialist Saga said many pensioners would be “sorely disappointed”. |
Investment firm AJ Bell said the plans “were always riddled with problems”, adding that the market would have been stacked in favour of buyers and posed unacceptable risks to savers, who could have seen the value of their pot “ravaged” by charges. It said some pensioners would have inevitably been targeted by “scammers”. | Investment firm AJ Bell said the plans “were always riddled with problems”, adding that the market would have been stacked in favour of buyers and posed unacceptable risks to savers, who could have seen the value of their pot “ravaged” by charges. It said some pensioners would have inevitably been targeted by “scammers”. |
Close Brothers Asset Management said that “common sense has prevailed,” adding that this market “had the potential to be the next big mis-selling timebomb, given the sheer scale of consumer protection issues it would generate”. | Close Brothers Asset Management said that “common sense has prevailed,” adding that this market “had the potential to be the next big mis-selling timebomb, given the sheer scale of consumer protection issues it would generate”. |
Saga, however, said thousands of people in receipt of a meagre retirement income from an annuity they were forced to buy years ago would have benefited from being able to sell it. It said its research had found that 58% of those who wanted to sell their annuity were receiving such a small income, they could do nothing meaningful with it. | Saga, however, said thousands of people in receipt of a meagre retirement income from an annuity they were forced to buy years ago would have benefited from being able to sell it. It said its research had found that 58% of those who wanted to sell their annuity were receiving such a small income, they could do nothing meaningful with it. |
The original plan was that the government would remove the restrictions on buying and selling existing annuities to allow pensioners to sell the income they receive, without unwinding the original contract. | The original plan was that the government would remove the restrictions on buying and selling existing annuities to allow pensioners to sell the income they receive, without unwinding the original contract. |