The Government has cancelled plans to introduce a secondary market for annuities because it cannot put in place sufficient consumer protections and because there would not be enough buyers to create a competitive market.
A Treasury statement says the consumer protections required could undermine the market’s development and believes there will be insufficient purchasers to create a competitive market.
The Government is concerned the secondary annuity market could produce poor outcomes for consumers, such as receiving poor value for their annuity income stream and suffering higher costs.
Economic Secretary to the Treasury, Simon Kirby, says: “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.”
Hargreaves Lansdown head of retirement policy Tom McPhail says: “This will no doubt come as a disappointment to some annuity holders who were looking forward to restructuring their retirement income, however it is the right decision. After extensive research, at the beginning of September Hargreaves Lansdown, the UK’s largest annuity broker announced that it would not be participating in the secondary annuity market. Our reasons for this decision were very similar to the government’s. The risks to the vast majority of annuity holders outweigh the benefits for the small minority who could benefit.
“This is also perhaps an interesting political change of direction. 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.”
ABI head of retirement policy Rob Yuille says: “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.
“The ABI has highlighted the challenges involved and worked constructively with the Government to try to solve them, but consumer protection has to be the priority.”