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Government plans right to sell annuities

3 Comments

Existing retirees may be given the right to sell their annuities, under plans unveiled by the Government.

Pensions Minister Steve Webb has said that people who have already retired should be allowed to ‘cash in’ their annuities and receive a lump sum that they can use as they see fit.

The plans will affect only those retirees with defined contribution or money purchase pensions, who bought an annuity with their pension pots. However, they will not be in place by the time the new pension freedoms, which mean retirees no longer have to buy an annuity or prove they have adequate means for drawdown, are due to come into force in April.

Speaking to the press, Webb said: “One of the main criticisms [of the new freedoms] has been about what happens to the people who are already locked in.

"For them, as it stands, there's nothing you can do – you have signed a contract and are stuck for life. My question is, is that fair? Can we not say to these people, 'well if you would rather have cash than income for life, then we will look at changing the law to make that possible'?”

Webb said the plans were being drawn up by the Department for Work and Pensions to explore the idea in more detail.

However, the pensions industry has raised questions about how the new powers might work in practice, and whether they would be in the best interests of retirees.

In particular, questions have been raised over how a market for annuities would work, because as annuities are contracts tied to an individual person’s lifespan, it would be difficult to set fair prices.

Malcolm McLean, senior consultant at Barnett Waddingham, an actuarial and pensions consultancy, and pensions media commentator, said the plan was a “logical extension” of the new powers, but added: “Protections will probably be needed to prevent pensioners - especially the very elderly - being ripped off. For many the cash option may well not represent good value for money.”

Nick Salter, President of the Institute and Faculty of Actuaries, said creating a market for annuities would not be easy, and highlighted the need for retirees to have access to financial guidance or advice.

“Allowing existing pensioners to surrender their annuities will not be straightforward, for consumers or annuity providers. In the midst of a large number of pension reforms, this further change would reinforce the need for individuals to have good guidance and, where required, good independent advice.”

This article has been commissioned by retiresavvy and any opinions voiced are the author's own.

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Comments

I was prompted to revisit this article by a piece in today's Times which quotes the Chancellor as saying that the Government hopes to bring in changes for existing annuity holders by 2017. This raised two concerns: 1. I had originally understood that this would be happening this year. Either my memory is faulty or an additional year has been built into the process, plus the watering down from a stated intent to a 'hope.' 2. I retired in September 2013, just before the changes were announced. Part of my pension is provided with an annuity from the Prudential. This was a re-investment of a former contracted-out pension into a Bond 32, which allowed for a Guaranteed Minimum Pension (GMP) at retirement. Because of the GMP I'm concerned that this may not even qualify for the freedom. I'm concerned that, because the annuity dies with me, a large sum will not be available to leave for my daughters. In effect, this seems to me to be grand theft! I really hope that this isn't the case!
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Hi Clive, We looked at the latest updates to this a couple of weeks ago in this article: https://retiresavvy.skipton.co.uk/selling-your-annuity-%E2%80%93-still-more-questions-answers The date was pushed back from this year to next because the government realised getting everything in place inside of 12 months was near impossible. We should know more details abouthow the system will work over the coming months – it might be a good idea to speak to an adviser or pensions expert to see whether your type of annuity will be covered by the new rules.
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#2 Thanks Andrew. As you may have guessed I hadn't seen the update, I'll take a look. You're right, before I do anything I'll be taking advice, but my main concern will remain the protection of my money. I have a six figure pot over which I had no choice at retirement and which just disappears into corporate coffers when I die, and I want to have control over it now and for the future!
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