Industry welcomes second hand annuities reform
Industry reaction to confirmation by Chancellor George Osborne that up to five million pensioners with an annuity will be allowed to sell them has been positive.
Addressing the House of Commons in today’s Budget, Osborne said the government will remove the restrictions on buying and selling existing annuities to allow pensioners to sell the income they receive from their annuity, without unwinding the original annuity contract.
NAPF director of external affairs Graham Vidler said the confirmation clearly fits with this government's agenda for pensions, but it’s unclear how savers will be protected.
"It’s vital this does not distract us from or undermine the freedom and choice pension reforms due to begin in 19 working days. The government must make sure this doesn't divert focus or resource from Pension Wise, damage the broader annuity market or slow down the development of a much-needed market in retirement solutions for those looking to make use of freedom and choice from next month," he added.
Lincoln Pensions CEO Darren Redmayne said the Chancellor is clearly appealing to the "grey vote" but there is a concern that he has “merely punted the pension risk down the road to be revisited at a future date”.
“Today's reforms, while creating additional flexibilities, do little to assist defined-benefit schemes managing record deficits. This has to be the priority of the new government in May,” he added.
Intelligent Pensions managing director Steve Patterson also noted the changes only apply to DC schemes and those receiving DB annuities will not have any flexibility to cash these in.
“People can transfer before retirement to take advantage of pension freedom, so it makes sense on one level to extend this to those receiving a defined benefit income. Trustees of schemes may also find this an interesting proposition. Exchanging annuity liabilities for cash could be attractive for scheme balance sheets. But none of this is simple, and extending the market to defined benefit annuities may simply be a trick too difficult to pull off in practice,” he said.
However he said the extension to the pension freedom changes is a positive step but not without risk.
“People need to be sure they are making the right decision and are getting value for money by cashing in their annuity. They need to consider how their later years of retirement will be funded. The FCA and DWP have a responsibility to help create an efficient market which protects the consumer by making the process and costs as transparent as possible. People need to have information and advice on their side for this to work,” he added