The pensioners stuck with annuities paying as little as £1.26 a week
Three years on from a Government promise to let people cash in annuities, millions of pensioners are still languishing on contracts, some of which pay as little as £1.26 a week.
Former chancellor George Osborne said five million people with annuities would be able to sell them for cash. However, the Government scrapped the plan in October 2016, citing fears it would “put consumers at risk” of poor deals.
Now a campaign group has urged Chancellor Philip Hammond to use this month’s Budget to help those pensioners stuck with policies paying tiny incomes that, if unlocked, could make a real difference to their lives.
Experts had predicted an annuity paying a healthy 60-year-old £1,000 a year might be swapped for as much as £16,000.
has been inundated with emails from readers stuck with tiny annuities bought before April 2015 when the “pension freedoms” reforms introduced meant you could cash in your pension.
Elaine Edwards, 63, said she voted for the Conservatives for the first time as a result of Mr Osborne’s promise. “In 2013 I bought three annuities with my £32,000 pension savings. One only pays me £4.90 a month,” she said. “These tiny annuities are outrageous. You’ve built up the pension, it’s damn well yours, you should be able to spend it how you like.”
Seventy-year-old Joseph Earp is still trying to pay off a loan that the bank only approved because he had planned to cash in his annuity to clear the debt.
He said: “When I heard the restrictions were going to be lifted I went to the bank and showed them the annuity I was going to sell and they happily lent me £6,000 to pay for my daughter’s wedding.”
Mr Earp complained to Standard Life, his annuity provider, but the firm said there was nothing it could do. “The proposal was never introduced and the law has never changed,” it said. “This isn’t Standard Life’s fault.” Aside from paying pitiful incomes, most annuities are sold on a “single life” basis, meaning they stop paying out once the customer dies. Money left in a pension, on the other hand, passes on free of inheritance tax and, in many cases, income tax too.
Ross Whitehead, 56, receives £60 a month from an annuity he bought in 2011. He took his pension early because both his father and grandfather died young and he wanted to make the most of his savings in case the same happened to him.
His partner, who took her pension after the freedoms took effect, used the new rules to cash in her pot and buy two properties. The rental income from the properties exceeds £1,000 a month.
Mr Whitehead said: “I also wanted to buy a property. After I took the pension out and realised it was an annuity I tried to reverse it, but it was too late.
“When I have to retire eventually I’ll be on hard times, even with the state pension income. It’s not what I anticipated.”
A little-known-rule – related to the 2004 Finance Act – does give some pensioners the right to cash in annuities of £10,000 or less. However, insurers have been reluctant to let customers use this option, arguing that they would need to rewrite contracts and that it would not be in customers’ best interests.
One reader is still paying off a loan he took out to pay for his daughter’s wedding