One of George Osborne's cornerstone policies on increasing pension freedoms has been dropped by the government, the economic secretary announced today.
In March 2015, the government announced plans to set up a secondary market in order to give pensioners greater access to cashing in annuities.
But in the wake of falling annuity values and a lack of demand, economic secretary Simon Kirby today announced that the government would no longer be taking the initiative forward. He 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 circumstances would put consumers at risk – this is something that I am not prepared to do.
The original idea of an exchange was that those holding annuities would be able to realise better value than by simply selling them to an insurance company and taking the cash. A decision to take the idea forward had been delayed until April 2017.
However, the government has now concluded that there would be "insufficient purchasers to create a competitive market", in other words, there would not be enough people prepared to buy the annuities.
The news did not come as a shock to some experts. Tom Selby, a senior analyst at AJ Bell said that the idea had been "riddled with problems" and added that there were a number of insurmountable hurdles.
"The market would have been stacked in favour of the buyer and posed unacceptable risks to savers, who could have seen the value of their pot ravaged by charges.
"Pension scammers would also inevitably have seized on the changes to target annuity holders. It was difficult to see a long-term market where consumers would have got good value," he said.
Old Mutual's pensions expert, Jon Greer, broadly agreed.
“The secondary annuity market was very likely to have been fraught with danger.
“It was a political promise made before the practical application of the policy had been considered, but shelving the proposals so soon is a major u-turn that the government will not have undertaken lightly," he said.
In addition, Selby said this could be a sign that the government is planning to announce further change in the sector in November.
It’s interesting to note that by ditching this policy, Philip Hammond has binned one of George Osborne’s key pensions pledges. The industry will now wait with baited breath for further announcements from the treasury ahead of the autumn statement, most notably on the future of pensions tax relief.