The government has announced that it is abandoning its plan to create a market for secondary annuities because it could not guarantee customers would get good value for money and could be at risk due to a lack of competition.
After multiple debates and discussions with pension providers, consumer groups and industry regulators, the government has decided there would not be a large enough number of companies willing to purchase annuities to create a sufficiently competitive market.
The statement from the Treasury said that the government has always been clear that the best option for most people was to keep their annuity incomes.
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,” he added.
The secondary annuity market plans
In March 2015, the government announced their revolutionary plan to enable those with an annuity to sell their policy to a provider in exchange for a cash lump sum.
The new policy, dubbed the ‘secondary annuity market’ or ‘second hand annuities’, was scheduled for April 2017. It would have ultimately allowed retirees with an existing retirement income policy effected before the new pension reforms were introduced on 5th April 2015 to benefit from the new pension freedoms.
It could have been particularly useful for those with small annuity incomes who had been forced to purchase an annuity back when it was compulsory to do so.
David Slater, CEO of Retirement Line said:
"As a leading annuity specialist, Retirement Line supports all efforts to further improve the pensions industry and provide greater opportunities for retirees to take control of their retirement money.
“It is vital that value for money is central to a policy such as this, and that the appropriate safeguards are in place. Clearly, the lack of competition available meant this would not be the case”.
“The decision will no doubt leave many retirees in a quandary if they had been planning to swap their retirement income for a lump sum. Alternate financial options such as equity release may see a boost in sales, as people seek out other ways to raise the cash lump sum they had been expecting to generate”.
Could you still raise a cash lump sum?
If you had been relying on the secondary annuity plan to provide a cash lump sum in your retirement, you may wish to consider other options that could allow you to raise the extra money you need.
A lifetime mortgage, also known an equity release plan, could enable you to unlock a tax-free cash lump sum from the value of your home, without the need to make any monthly repayments on the loan.
If you are thinking about going down this route then seeking specialist advice is vital to understand all the benefits and drawbacks, including how a plan will reduce the amount of inheritance you leave.
Retirement Line are proud to be business partners of award-winning Age Partnership, one of the UK’s largest specialist equity release brokers.
Call us now to arrange a telephone discussion or a home appointment with an equity release specialist on 0800 652 1352.
Equity release may involve a lifetime mortgage or home reversion plan. To understand the features and risks, ask for a personalised illustration.