The Treasury has ripped up plans to let millions of pensioners sell their annuities for cash lump sums, over fears it could lead to them being ripped-off twice by insurers.
The scheme was announced last year as a lifeline to rescue elderly savers from being locked into lifetime annuity deals which pay them derisory annual incomes.
Doubts had been cast over the scheme in recent months following revelations by this newspaper that a number of pension firms had refused to take part.
Regulators had also warned that pensioners could face “rip-off” charges of up to 20 per cent when they tried to cash in their pension.
Last night experts said that although pensioners locked into poor annuity deals would be disappointed by the about-turn, the policy was flawed from the start and the Government was therefore right to scrap it.
Douglas Anderson, a partner at pension consultancy, Hymans Robertson said: “While some retirees may feel a sense of disappointment as they feel trapped in a product they didn’t want to buy, in reality, getting value for money from cashing in annuities would have been a tall order.”
The so-called “secondary annuity market” was due to open in April next year, giving millions of pensioners locked into record-low rates the chance to escape their policies and raise cash to pay for home improvements, holidays or to pay off debts.
It was announced shortly after the introduction of the pension freedoms and was designed to extend the flexibilities to people who had previously felt forced into buying annuity.
The secondary annuity market joins a growing list of George Osborne’s policies to be killed by Theresa May’s government. Tom McPhail, head of policy at Hargreaves Lansdown said the move was “an interesting political change of direction”. He added: “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.”
Last night the Treasury confirmed it has decided to can the policy saying the level of protections required to protect consumers would undermine the market and make it unviable.
For example the Financial Conduct Authority had previously suggested customers should have to pay £1,000 for financial advice before selling their annuity for cash.
Simon Kirby, the 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.”
In April insurance giants Standard Life and Royal London said they had no plans to buy second hand annuities, while Aegon said it “probably” would not participate in the market.
Another major insurer, LV=, said that while it “may consider” buying back its’ own customers’ policies, it had no plans to purchase them from other policyholders.
Rob Yuille, head of retirement policy at the Association of British Insurers which represents pension firms, said: “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.
“We have highlighted the challenges involved and worked constructively with the Government to try to solve them, but consumer protection has to be the priority.”
Read the original article at the Telegraph.