Yesterday's announcement to scrap George Osborne's plans to create a secondary annuity market was unsurprising to many. According to some experts the writing was on the wall as soon as the process was delayed until April 2017.
Nevertheless, there was a lot of noise from analysts and experts.
The right decision?
The government said that there simply wasn't the demand and that consumers wouldn't be able to get good value for money from a secondary market. It seemed like no-brainer, but experts explained that it wasn't quite as simple as that:
“This is the right decision for the right reasons. We agree with the government that the secondary annuity market came with considerable risks for customers, including from unregulated buyers,” said Rob Yuille, the head of retirement policy at the Association of British Insurers.
“On balance though this news should be welcomed,” said Douglas Anderson, a partner actuarial consultants Hymans Robertson.
“We welcome the Treasury making this brave decision on grounds of consumer protection,” said Steven Cameron, a pensions director at Aegon.
“It was a political promise made before the practical application of the policy had been considered,” said Jon Greer, a pensions expert at Old Mutual.
“It would have been wrong to move forward without assurances that consumers could get value for money and have the necessary protections,” said Vickie Sheriff, director of campaigns and communications at consumer group Which.
A freedom too far?
As one of the cornerstone elements to George Osborne's increasing of pensions freedoms, many believed that it was a policy that simply went too far:
“All the signs were the secondary annuity market would have been a pension freedom too far,” said Steven Cameron, a pensions director at Aegon.
“This felt like a step too far in extending the pension freedoms,” said Andrew Tully, a pensions technical director at Retirement Advantage.
“So the secondary annuity market has failed before it even started. This is not such a bad thing," said Andrew Pennie, head of pathways at Intelligent Pensions.
“The plans for a secondary annuity market were always riddled with problems,” said Tom Selby, senior analyst at AJ Bell.
“Ensuring adequate consumer protection was always going to be difficult,” said David Fairs, a pensions partner at KPMG.
“The industry predicted and the government have now agreed, the need to ensure consumer protection was likely to result in too many barriers,” said Martin Tilley, director of technical services at Dentons Pension Management.
The biggest concern for the government was that because of the lack of demand, the market would not be fair and could be open to unscrupulous behaviour:
“If the government had gone ahead with the secondary annuity market then many consumers would likely have missed out on getting fair deal due to a reluctance, or inability, to pay for the professional advice many of us need,” said David Fairs, a pensions partner at KPMG.
“This is good news for consumers… There simply would not have been enough protection in place for consumers come April,” said Douglas Anderson, a partner actuarial consultants Hymans Robertson.
“Trading in an annuity product would have left people exposed to our natural bias to favour payment in the short term, rather than a steady income received over time,” said Jon Greer, a pensions expert at Old Mutual.
“The main reason behind this decision is the risk of poor consumer outcomes; people most vulnerable and in need of ongoing income attracted by the lure of immediate cash,” said Andrew Pennie, head of pathways at Intelligent Pensions.
Forced into annuities, no way out?
Before pension freedoms were introduced in 2015, many people were locked into annuities that either didn't pay sufficient income streams during retirement, or were not flexible enough to deal with changed circumstances. A secondary annuity market would have given these people a way out:
“While some retirees may feel a sense of disappointment as they feel trapped in a product they didn’t want to buy, in reality, getting value for money from cashing in annuities would have been a tall order. With freedom to sell came the risk of making poor decisions,” said Douglas Anderson, a partner actuarial consultants Hymans Robertson.
“Scrapping the secondary annuity market is bad news for those who were effectively forced into buying an annuity before the freedom and choice measures came along,” said David Fairs, a pensions partner at KPMG.
“There will be many annuitants who will be very disappointed by this decision as since it was initially raised by Steve Webb, many of them will have seen it as an opportunity to release themselves from the shackles of the annuity rules," said Martin Tilley, director of technical services at Dentons Pension Management.
"This development leaves the dichotomy between those who retired before pension freedoms were introduced in 2015, who were required to buy an annuity, and those who retired after that and who were not required to do so," said Steven McEwan, an insurance partner in Hogan Lovells.