The government has decided to cancel plans to create a market for secondary annuities.
A statement on the Treasury’s website explained the reason for the U-turn just 6 months before it was due to be implemented. The government said, “It has become clear that creating the conditions to allow a competitive market to emerge could not be balanced with sufficient consumer protections.”
It continued, “After an extensive programme of engagement with industry, financial regulators and consumer groups, the government has decided not to take forward plans to introduce a secondary annuities market because the consumer protections required could undermine the market’s development.”
Earlier this year, Retirement Professionals had taken the decision not to offer a secondary annuity brokerage because of concerns with client protection.
The idea was to create a secondary annuity market which would allow annuitants to sell their annuities onto third parties and was due to come into effect in April 2017. The market would have allowed people to sell their annuities and take their pension pot as a lump sum or place it in drawdown. The Treasury had said it wanted to make advice mandatory for those looking to sell their annuities.
The economic secretary to the Treasury, Simon Kirby, said “Allowing consumers to sell on their annuity income was always dependent on balancing the creation of an effective market with making sure consumers are properly protected.”
“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. Pursuing this policy in these circumstance would put consumers at risk – this is something that I am not prepared to do.”
The Treasury will be left with a £485 million shortfall in expected revenues next year after scrapping plans to create a secondary annuity market.
The Treasury said it had estimated only 5% of all people who hold an annuity policy had been expected to take advantage of the market.
The government expected around 500,000 people with annuities to take advantage of the new market. It expected to raise £960 million in revenues over the first two years of the policy, as people cashed in their annuities and paid extra tax.
In the first year, 2017-2018 it expected to raise £485 million, and £475 million in 2018-2019, followed by a net loss of £150 million in 2019-2020.