“Never too old to learn”
The final piece of the pensions freedoms jigsaw fell into place last Tuesday afternoon when Simon Kirby, Economic Secretary to Her Majesty’s Treasury announced the Government will not move forward with plans for a secondary annuities market.
Key points in Mr Kirby’s announcement included:
- “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.”
It became clear that, after much consultation with the pensions and financial services industry, the Government was pulling the plug on the whole idea.
A government green paper published in March 2015 outlined then Chancellor George Osborne’s idea of a secondary annuity market in which willing sellers could be matched with institutions (buyers) offering hard cash for their unwanted annuities. Co-authored by the Minister for Pensions at the time, Steve Webb (now Director of Policy and External Communications for leading pension provider Royal London) the green paper gave a date of April 2016 for this to be up and running.However, in a move that sounded alarm bells at the time, the initial launch of the scheme in April 2016 was pushed back to April 2017 to allow ‘a further consultation period’. During this period, intense discussions were held with the financial services industry, leading annuity providers, potential buyers of annuities and regulatory bodies against a backdrop of anticipation – certainly for those hoping to cash in poor value annuities for a cash lump sum.
With the final nail now well and truly hammered into the coffin of annuity sales, the reality has become clear; while the public will was there, the industry had never warmed to the idea and the Treasury has spoken. While Mr Kirby has put a positive spin on the decision, citing consumer protection, it appears that, during the long consultation process, the magnitude of the exercise and the mechanics involved became clear and the industry went from being lukewarm on the idea to being positively frosty.We are just a month away from new Chancellor Philip Hammond’s first Autumn Statement and we may hear more from him on why this last part of the jigsaw has been abandoned – and who knows, he may have some of his own rabbits to pull out of the hat…
But where does all this leave annuity holders who were waiting for the new regime to sell their unwanted annuities? Well, exactly where they were when they bought it. That is, still receiving a guaranteed income for life. Is that such a bad thing to have in retirement? There will of course be many who will be disappointed with this latest announcement and, if they were expecting a cash injection from an unwanted annuity, they may have to rethink their financial planning strategy – COURTIERS is here to help those people make the best of the latest news and help them continue to enjoy a comfortable retirement.
We’d been waiting for an announcement on the establishment of a secondary annuity market for quite some time now. First announced by George Osborne back end of 2014, as a complementary part of the whole suite of reforms of pensions – pensions freedoms they were known as, and the secondary market was due to be up and running by April 2016. Unfortunately it was postponed then which should have sounded a few alarm bells. They were going to have another consultation period.
So now we’ve heard from Simon Kirby, the Treasury spokesman that the plans have now been shelved – not really put to one side, I think they’ve been shelved. The market has not been established and those waiting to sell their annuities are obviously going to be disappointed.
The reason annuities were such a bad deal over the last few years is that rates have been very, very low, linked to gilt yields, linked in turn to interest rates which as we all know are at an all-time low, possibly going to go lower. But as I say, the market spoke, the industry spoke – they didn’t really like the idea and it’s been quietly pushed to one side.
Given the fact that people were holding what they considered to be poor value annuities, having been sold them by the industry, it’s difficult to see why they thought selling them back would get them a better deal. This is one of the big problems – how do you value that annuity?
Well I think one of the perhaps positives to come out of this is that it does offer a bit more consumer protection. As you know we recently ran a piece on pension scams and the way that fraudsters are potentially parting people from large sums of money. This was pretty much an open goal for them and I know Simon Kirby did put that spin on it – consumer protection – getting you a good deal, and I think that’s probably, in the end, not a bad thing.
Of course we now have a new chancellor, Philip Hammond, who is shortly to make his own, his first, his debut Autumn statement in November and who knows? He may give us a few more ideas of why this has been put to one side, and perish the thought, he may even have some more ideas on pension freedoms that are already being enjoyed.
Well as they say, we are where we are. You can’t sell your annuity and we’ll have to see how that’s received by the “annuity community” at large – a lot of people as I’ve said will be disappointed but what is an annuity? It’s a guaranteed income for life. If you’re retired, that’s not a bad thing. We’ll have to wait and see how this all pans out.
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