Thousands of savers locked into poor paying annuity deals will have the chance to cash in their policies as a major insurer agrees to unlock their money.
Phoenix Life is making the offer to 20,000 annuity customers who can give up a guaranteed lifetime income for a cash lump sum.
The customers will receive a letter detailing how much they can have if they swap their annuity for cash.
If the pilot scheme has a good take up, the company plans to extend the deal to tens of thousands more customers.
Phoenix Life is offering the cash swap to customers aged between 55 and 85 years old whose annuities pay less than £300 a year.
Some earn just a £1 a week from their pension investment.
Fixing unfair contracts
The move comes after government proposals to set up a secondhand annuity market collapsed late in 2016.
Ministers felt pension freedoms for younger retirement savers were unfair when those who already had an annuity were locked into the meagre payments for life.
The Phoenix Life move shows other annuity providers can offer cash to buy their customers out of their contracts if they wish despite terms locking them into the deal.
Danny Dowd, head of retirement propositions at Phoenix, said: “We are using the same legislation that applies to every other insurer.
“We’re doing this with a batch of just under 20,000 customers to start with and will then analyse whether it has been successful and judge whether we could extend the offer to more customers.
“In an ideal world we would offer this to everyone straight away, but we don’t want to be swamped and unable to get money to people quickly when they ask.”
Dowd explained the trade-in helped customers with their finances by giving them a welcome lump sum of up to £2,000, but if customers with a cash boost of £10,000 or more were offered the swap, they would have to take advice from an IFA.
The company gains from losing the expenses associated with administrating thousands of small retirement pots.
The Pension Advisory Service has agreed to discuss the swap with any Phoenix Life customers unsure of their options.