A wise decision...or a missed opportunity?

The Government had promised to scrap this, with people taxed only at their marginal rate.

Nevertheless, for most, it was never going to be a good idea to sell their annuity – it offers security.

Plus, annuity returns at the moment are very low so those who already hold one may well have secured significantly higher rates.

Yet, there had been a clamour from some who wanted out – arguments in favour include: where other income is sufficient to cover a client’s needs; to provide a lump sum for relatives or dependants, paying down debt ; a change in circumstances; to purchase a more flexible pension income product or where minimal annuity payments exist.

However, the million-dollar question was always – how much would you get for your annuity?

A computation likely to be based on age, the type of annuity – for example, single life or joint life – health and lifestyle.

How long a person was likely to live would be a major factor.

A potential purchaser would know that the income would end when the annuitant died, so if he/she was in poor health, they wouldn’t offer very much. Meanwhile, those fit and healthy and whose annuity might therefore have attracted a better price were likely to value the long term income more.

The other issue for a potential buyer was that payments would cease on the annuitant’s death, not theirs. How many people would want that level of uncertainty?

So purchasers were going to demand a discount and the firm that carried out the transaction would make a charge.

Hence the proposed secondary market was not particularly attractive to seller or buyer.

Following a wide-ranging consultation, the Government decided that “creating the conditions to allow a vibrant and competitive market to emerge, with multiple buyers and sellers of annuities, could not be balanced with sufficient consumer protections”.

It estimated that only five per cent of people who currently hold an annuity would take advantage of the reform and there would simply be insufficient purchasers.

Reaction has been mixed though mostly supportive.

The Association of British Insurers said it was the “right decision”.

Rob Yuille, head of retirement policy at the ABI, noted: “We agree with the Government that the secondary annuity market came with considerable risks for customers, including from unregulated buyers.”

But the former pensions minister Ros Altmann said it was a missed opportunity. “It will be disappointing to tens of thousands of people who bought an annuity they didn’t want, and didn’t need.”

And some of them may refuse to accept that the Government’s ruling is final, and continue their campaign for “justice”.

We may not have heard the last of this yet. Trevor Law is managing director of Merito Financial Services, chartered financial planners, based in Solihull. Email:tilaw@meritofs.com