It’s really difficult being a minister!
As millions of pensioners are told they can’t cash in annuities, the man responsible says:
A MINISTER responsible for the U-turn that has left millions of pensioners unable to cash in their annuities appealed for sympathy last night by claiming it is ‘difficult’ being a top politician.
Days after savers were left high and dry by the Government, Treasury minister Simon Kirby complained about the challenges of his job.
Answering questions from angry MPs, Mr Kirby said: ‘It’s difficult being a Government minister. Sometimes you have to make difficult and hard decisions.’
The Government had promised that millions of pensioners would be able to swap rip-off annuities for a lump sum from April.
But most major insurance companies – some of which had sold pensioners poor-value annuities in the first place – refused to sign up to the plans.
Mr Kirby, who as a junior minister is paid nearly £100,000 a year by the taxpayer, admitted the Treasury had axed its flagship policy after realising there would not be enough firms willing to buy the annuities.
He said the Government had realised that ‘without compromising on consumer protections, there would be insufficient purchases to create a competitive market’ and that ‘pensioners trying to sell their annuities would also be likely to incur high costs in doing so’.
Ministers have been accused of buckling to pressure from insurance companies, which are said to have lobbied against the policy.
Furious pensioners slammed ‘greedy fat cat’ insurers for ‘colluding’ and quashing the plans.
Six major firms refused to commit to buying back annuities on the proposed second-hand market.
Aegon and Royal London had said they would not even buy back annuities from their own customers, let alone from policyholders at other firms. Standard Life, Aviva and Scottish Widows were undecided, while LV= and Prudential were considering buying back annuities from their own customers, but not those of other firms.
Legal & General was the only major insurer to commit to buying back annuities from any customer.
MPs and pensioners branded the collapse of the plans a disgrace. Leeds North West MP Greg Mulholland said: ‘It’s no surprise that many in the industry who gave people such bad annuity deals in the first place have been lobbying so hard against this.
‘They have a huge interest in stopping people from being able to sell their badly performing product.
‘The new Government has simply bowed to the pressure and are leaving pensioners worse off.’
The Government claimed that allowing people to sell their annuities would have put them ‘at risk’ of poor-value deals.
But pensioners accused ministers of ‘patronising them’ and said insurers should also have done more to make the plans a success.
Anthony Katz, 61, who worked for 28 years as a buyer for the shoe firm Russell and Bromley and now owns a hotel in the Cotwolds, bought a £2,000-a-month annuity with his £750,000 pot in 2012.
He said: ‘Insurers say this was about protecting customers, but I think that is a lot of rubbish.
‘They are interested in their profits and helping customers to get out of their annuities would not have been good for them. They are greedy fat cats driving around in their Aston Martins while we are stuck with annuities we were forced to buy. It is daylight robbery.’
Retired engineer Norman Webster, 61, from Bognor Regis, West Sussex, was also hoping to sell his annuity after taking out a £100-amonth deal several decades ago.
He said: ‘I wonder if there was pressure put on the Government by pension firms.’
Rob yuille, of the Association of British Insurers, said the industry had ‘worked constructively with government’ but found the plans ‘came with considerable risks for customers, including from unregulated buyers and scammers’.
GEOrGE Osborne has been much criticised in recent months, often rightly so. But the former Chancellor did two things worthy of our whole-hearted support.
One was to allow people with private pension pots to cash them in. This change took effect in April 2015, though not without many insurance companies being deliberately obstructive, and in some cases applying exorbitant fees.
The principle behind Mr Osborne’s revolutionary measure was that the money in private pension pots belongs to those who have saved it, and they should not be obliged to buy annuities (which offer a regular guaranteed income for the rest of a pensioner’s life), many of which offer Mickey Mouse returns.
His second sweeping change was to extend the same freedoms to the five million people who, often on bad terms, have bought annuities. In March 2015, he announced that they would be able to cash in these rip-off annuities if they wanted.
Regret
As recently as last December, ministers confirmed that the scheme would go ahead in April 2017. Millions of people will have worked out their spending plans on this basis. I certainly have done so in respect of a derisory annuity I receive. I’d rather have the cash, thank you.
This promise — for that is what it was — has now been rescinded. On Tuesday, Treasury officials announced, without apology or show of regret, that Mr Osborne’s innovation is being scrapped.
So if you were intending to invest your annuity in the stock market, or pass on the proceeds to your children, or build a new bathroom, I’m afraid you will have to think again.
This, then, is my question. By what right does the Treasury withdraw such a solemn pledge? It was made by a Tory Chancellor in 2015, and confirmed by a Tory government — this Government — at the end of last year.
If a general election had taken place, and a different party had taken power, it would have had the right to jettison such a policy so long as it was intimated in its manifesto.
But that is not the case. The same party remains in office. It is true there is a new Prime Minister and a new Chancellor, but they are expected (except in matters relating to Brexit) to follow policies which have been previously embraced.
What explains this turnaround? The Treasury doesn’t argue that Mr Osborne’s aspiration was wrong-headed. It merely says it is abandoning the policy because so few firms have expressed an interest in buying back the annuities.
You bet they have! If they are sitting happily on an annuity which suits them, but not the poor pensioner being paid a meagre amount, why would they wish to alter these arrangements unless a gun were put to their heads? No wonder the Association of British Insurers declares that the Government has made the ‘right decision’!
According to the Treasury, it has cancelled the scheme in order to stop people being exploited by firms. Pensioners were facing fees of up to 20 per cent for cashing in. Simon Kirby, Economic Secretary to the Treasury, says he doesn’t want to ‘put consumers at risk’.
But wasn’t this all foreseeable when George Osborne announced the policy 18 months ago? Wasn’t it obvious to ministers, who confirmed less than 12 months ago that the plan was on track, that greedy insurance companies would fight to hang on to the ill-gotten proceeds which they already have?
As I’ve mentioned, when the first part of these reforms took place — enabling people over 55 to cash in their pension pots — the insurance companies were characteristically stonewalling, and sometimes downright grasping.
In my own case, when I decided to cash in a modest pension pot last year, I was met with a blizzard of contradictory information, administrative inertia and deliberate misinformation. After countless telephone conversations leading nowhere, I finally threw myself at the mercy of Money Mail, which rescued me from the bureaucratic tangle. When the Government announced the second part of this liberating pension revolution, it must have known very well how reluctant the selfserving pensions industry would be to co-operate. So why cave in now?
Doubtless there are genuine technical challenges in making this scheme work but they, too, were foreseeable. In any case, where there is a will, there is usually a way. I’m afraid that neither government nor the industry wants this to happen.
The melancholy truth is that the shameless insurance companies, which have often offered abysmal returns and sometimes mis-sold annuities, will only play ball if they can extract a 20 per cent cut. It’s called daylight robbery.
Slippery
If you think I exaggerate, consider an article in Wednesday’s Money Mail which explained how some slippery insurers have mis-sold annuities to customers in poor health which were intended for the healthy.
People with serious medical problems have a shorter life expectancy, and should therefore expect a higher guaranteed income from an annuity than those likely to live much longer.
This is a distinction some insurance companies have conveniently ignored. They hit the jackpot every time a sick customer dies early having received the same annuity rates as a healthy person.
It is true such trickery lies at the extreme end of malpractice in the industry. Even so, there are countless examples of firms offering pitiful returns, and failing to advise customers to look elsewhere for better deals, as they are required to do. That’s the position I’m in, which is why I had planned to benefit from Mr Osborne’s undertaking, and cash in my annuity.
By the way, don’t think me starry-eyed about the former Chancellor. His removal of tax relief on pensions for higher earners is likely to deter saving. According to the Office for Budget responsibility, it also may end up costing the Exchequer £5 billion a year as higher earners move their money into investments producing less tax.
Nor did Mr Osborne seek to help those who have been driven away from pensions by low returns, towards buy-tolet property.
From April, they have had to pay an extra 3 per cent in stamp duty on any new house or flat they buy, which on a property costing £200,000 works out at £7,500.
Selfish
But he was at least right in offering new freedoms to people with private pensions, and it is a tragedy that the second stage of his imaginative plan has been subverted by selfish, intransigent insurance companies, and dumped by a querulous and appeasing Treasury.
There are, of course, several reasons for the sorry state of private pensions, not least record low interest rates. But firms which have specialised in rip-off charges can scarcely be surprised if the industry is losing public support.
It is surely outrageous that five million people should be locked into annuities from which they had been led to believe by the Government they would be able to escape.
In her recent speech at the Tory Party Conference, Theresa May reached out to ‘ordinary, decent people’. She said: ‘We need them to know that they have a voice that will be listened to’.
Many of these five million pensioners — very few of whom are likely to be rich or grand — have been screwed by rapacious insurance companies. I’m afraid their abandonment is all the evidence we need that their voice is not being heard.