Plans to set up a market place for pensioners to offload poor performing annuities have been scrapped in a major government U-turn.
Around 2 million pensioners are tied into retirement payments after investing their pension cash into annuities.
Former Tory Chancellor George Osborne wanted to improve their finances but arranging a regulated market where they could swap their annuities for cash.
The government had announced the market would be set up and ready to trade from April 2017.
But in a statement, Economic Secretary to the Treasury Simon Kirby explained the government now believed going ahead would create a ‘misselling time bomb’.
Consumers at risk
“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,” he said.
“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.
“The government has always been clear that for the majority of people keeping their annuity incomes will be their best option, estimating that only 5% of people who currently hold an annuity would take advantage of this reform.”
The announcement follows an ever-growing list of financial providers distancing themselves from the scheme, leaving too few to ensure a competitive market.
Potential lifesaver
Former pensions minister Ros Altmann has slammed scrapping the secondary annuity market.
“Many have been waiting anxiously for the opportunity to undo the annuity they were forced to buy and will feel let down by today’s announcement that the secondary annuity market is being scrapped,” she said.
“Many will be stuck for the rest of their life with an annuity they never wanted: This was never likely to be a huge market, but for some individuals it would have been a potential lifesaver.”
An annuity is an insurance contract bought with retirement savings that offers a guaranteed income for life.
Before the recent pension reforms, all retirees had to buy an annuity before the age of 75.
The secondary market was an attempt to bring similar financial reforms to annuities as those now offered under pension freedoms.
