HM Treasury has confirmed its decision to abandon the policy of creating a secondary annuity market, saying that it had become clear that creating the conditions to allow a competitive market to emerge could not be balanced with sufficient consumer protections.
The former chancellor, George Osborne, announced in his March 2015 Budget that the government would extend its pension freedoms to those who have already bought an annuity, so that they too could benefit from the pension freedoms. The idea was that from April 2017 the Government would remove the significant tax restrictions for people looking to sell their annuity, giving pensioners with an existing annuity (and anyone who purchases an annuity in the future) the ability to sell it on for a cash lump sum and take advantage of the pension freedoms.
The policy would have enabled as many as five million pensioners with annuities to sell them on through a secondary annuity market. Annuities have long been criticised for being poor value and producing a meagre income and it was hoped that the creation of a secondary annuity market would help those pensioners who have been trapped in poor-value annuity deals.
However, the move has been welcomed by many in the pensions industry. Rob Yuille, head of retirement policy at the Association of British Insurers, commented that: “This is the right decision for the right reasons. The industry has consistently supported the freedom and choice reforms, but we agree with the Government that the secondary annuity market came with considerable risks for customers, including from unregulated buyers.”
It had become clear that many insurance firms were unwilling to enter the secondary annuity market, meaning that there would be very little competition. This lack of competition would have created a small and limited market in which pensioners were unlikely to receive good value for money for their annuities.
Despite this, the former pensions minister Ros Altmann believes it is a shame that this aspect of the pension freedoms is being abandoned, commenting that: “Many have been waiting anxiously for the opportunity to undo the annuity they were forced to buy and will feel let down…”