Plans to allow pensioners to sell their annuity have been shelved by the government.
The Treasury announced today that the secondary annuity market would not be going ahead in April 2017 as planned, saying that the amount of consumer protection needed would have stifled the market.
An annuity is a financial product that you get at retirement; essentially, you hand over your pension savings and you’re guaranteed a regular income until you die. Before the 2015 pension freedoms, nearly everyone bought an annuity, and they were virtually impossible to sell. The previous government believed that some people – particularly those with a short lifespan – could have benefited from selling their annuity to get a cash lump sum instead.
Not enough annuity buyers
The Treasury announcement outlined fears that there wouldn’t have been enough buyers competing for people’s annuities, had the secondary market plan gone ahead.
Simon Kirby, economic secretary to the Treasury, 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.’
Find out more: annuities explained – see how these products work
Selling an annuity
Currently, if you sell your annuity income you’ll pay a penalty tax charge between 55% and 70% – making the prospect effectively useless.
In April 2017, this penalty was due to be removed for both existing annuitants and those buying an annuity in the future. This would have brought annuities in line with other products, following the introduction of the 2015 pension freedoms.
However, there were many unanswered questions about how much of their original investment that sellers would get back and whether fees would devour the annuity’s cash value.
The government had previously estimated that only 5% of people who currently hold an annuity would take advantage of this reform.
Vickie Sheriff, director of campaigns and communications at Which?, said: ‘The decision to cancel these plans will be disappointing for those who wanted to take advantage of the new pension freedoms. However, Which? raised concerns that some people might not get a good deal, so it would have been wrong to move forward without assurances that consumers could get value for money and have the necessary protections.’
- Our guide explains the income options for your pension under the 2015 rules
- Plan for life after work with our pensions and retirement hub
- Your pension query answered by calling the Which? Money Helpline