Ministers to discuss fate of pensioners trapped with annuities
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Version 0 of 1. Pensioners who are locked into an annuity to provide them with retirement income may be allowed to sell the policy under measures reportedly being discussed by ministers on Friday. The 2014 budget announced new freedoms for retirees who, from 6 April 2015, will be able to withdraw all of their pension savings as they wish, instead of having to buy an annuity contract from an insurer. However, as things stand millions of people already locked into annuities will be unaffected by the new rules. The Financial Times reported that proposals were being discussed to allow those who have annuities to resell them for a lump sum. The idea had been proposed by the pensions minister, Steve Webb, who in January said pensioners and insurers were interested in the plan. A consultation on the idea could form part of Wednesday’s budget announcement, it is thought. Ros Altmann, a pensions expert and the government’s older workers champion, said such a change would benefit people who had purchased an annuity because they had no choice but now needed the money to repay debts or pay for health or care needs or other urgent spending. “Many of these people have written to me complaining that they didn’t want or need an annuity and would much rather have a cash lump sum to spend as they wish, rather than an income for life that has no inflation protection,” she said. People who had purchased small annuities might also wish to take advantage of the change, she said. “Someone with a £5,000 pension fund who bought an annuity at age 60 might have less than £5 a week for life, whereas having a few thousand pounds straight away could make a real difference to their lives,” she said. Altmann said there were risks that people would be offered poor value and charged unfairly high sums to cash in their annuity. “There are risks that people will cash in their annuity, spend all their money and then have to live on state benefits as they become poor in retirement. This risk is no different to that which exists under the new pension rules and it just helps remove some of the unfairness between the past and the future.” Tom McPhail, head of pensions research at financial firm Hargreaves Lansdown, said there was not enough time for meaningful action to be taken before the election. “However if the idea proved popular it could be resurrected by the next government and in the meantime it could be a vote winner for the coalition,” he said. McPhail said the idea could make sense “for a minority of existing annuity investors”. “There are likely to be significant costs and risks involved and these may well outweigh any potential benefit,” he added. “The chances of this idea ever getting off the ground appear slim but a consultation would at least present the opportunity to explore it in more detail.” Since the chancellor announced the new rules on pension access, sales of annuities have plummeted, as retirees have chosen to wait and take advantage of the freedoms. Withdrawals, which can only be made from defined contribution pensions, will be subject to tax and charges, and not all savers will be better off taking their cash. Annuity provider Partnership said the idea of allowing consumers to resell annuities could make them more attractive purchases for savers. The firm said it would consider entering the market as a buyer of annuities “if we believed it was appropriate for our business and we were able to offer the best rate for consumer”. Partnership’s chief executive, Steve Groves, said: “The devil is, as always, in the detail, and this proposal would inevitably require the development of a mature market and appropriate regulations to safeguard consumers. We will monitor this closely and contribute to any future consultation. However, in principle, Partnership is broadly supportive.” |