Government told to boost savings after U-turn on controversial pension plans
Fears of financial scams, thousands of people running out of money in their old age and the potential for cash-strapped pensioners to make decisions they will bitterly regret have forced a Government U-turn over controversial plans to allow pensions annuity holders to resell their entire annuity after retirement. In an announcement that came amid mounting pressure from the pensions industry, economic secretary to
the Treasury, Simon Kirby, said he was not prepared to put consumers at risk by pursuing the policy, adding: “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.”
But he defended the original plans, which were announced amid a flurry of other changes, including early access to pensions cash, designed to improve the retirement savings rates of millions of UK workers who are currently failing to save enough for a lengthening retirement. “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 per cent of people who currently hold an annuity would take advantage of this reform,” he said.
Many experts will have sighed with relief over the decision, after the proposed policy – announced with much fanfare as part of the March 2015 Budget – was roundly criticised from the start for paving the way for those with limited pension funds, scant information about their annuity’s true value, and a limited understanding of the new rules to sell their policies too cheaply, fall victim to con artists or make bad decisions during periods of financial pressure. “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,” said Tom McPhail, head of retirement policy for Hargreaves Lansdown. ”The risks to the vast majority of annuity holders outweigh the benefits for the small minority who could benefit.”
“While we could understand the thinking behind this, it looked set to be complex with customers struggling to achieve good value and very few people set to see any true benefit,” added Richard Parkin, head of pensions policy at Fidelity International. But with the painfully low annuity rates currently on offer for new retirees, others warn that the decision robs pensioners of the power to manage their own finances and circumstances. The initial decision to give people the power to sell their annuity was borne from pension freedoms introduced last year and the desire that all retirees could enjoy them,” said Paul Green, director of communications for Saga. “The cancellation of the secondary annuity market quashes that notion.
“The development of this kind of market was always going to be complex, and we await more detail about the consumer protections that the Government felt this market was unable to provide. However, there will be many pensioners who will be sorely disappointed – thousands of people who receive minimal income from annuities they were forced to buy would have benefitted from a way to sell their annuity. Indeed, research carried out by Saga found that 58 per cent of people who wanted to sell their annuity were receiving such a small income they could do nothing meaningful with it. It looks now that there will be no way for them to turn that meagre income back into a lump sum.”
“This is also perhaps an interesting political change of direction,” Mr McPhail said. “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.”
In the face of the change of heart, the Government has now been urged to focus on creating a coherent system of incentives for retirement saving and to safeguard the success of automatic enrolment in the workplace pension.