The government has decided to scrap its plans to create a market for secondary annuities.
In a statement released this afternoon explaining the U-turn, 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 went on: “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.”
Economic secretary to the Treasury Simon Kirby said allowing consumers to sell their annuity had been dependant on a market in which consumer were “properly protected”.
He went on to say it had become clear the Treasury could not guarantee consumers would receive value for money in a market likely to be small and limited and explained to continue to pursue the policy would put consumers at risk – something he was “not prepared to do”.
Intelligent Pensions head of pathways Andrew Pennie said the failure of the secondary market was “not such a bad thing” and probably “avoided an unnecessary distraction”.
He added: “With a relatively small percentage of people predicted to use the secondary annuity market, in the absence of value for the user I think it’s right the government has put this initiative to bed.”
“Perhaps now the government can refocus its resources on ensuring people don’t invest in the wrong retirement income strategy at the outset, which will require delivering greater individual support and much wider access and use of regulated advice.”
For his part, Dentons Pensions director of technical services Martin Tilley suggested many would be disappointed with the government’s decision but added the need to ensure consumers’ protection was “likely to result in too many barriers and potentially costs being imposed”.
‘Money wasted’
He said: “Sadly, some organisations will have spent resource time and money in trying to make this work and this money will have been wasted. Other individuals may also have put decisions on hold pending the creation of the market, which might also have resulted in bad consumer outcomes.
“A key message to be learned from this is that proposed changes – and even ‘kite- flying’ of ideas on major changes of policies like this – should not be released to the public without a prior closed-door consultation with expert bodies who could have identified barriers to implementation so consumers do not have false expectations of what may or may not happen.”
The secondary annuity market had been due to open on 6 April 2017 to allow people to sell their annuities and take their pension pot as a lump sum or place it into drawdown. The Treasury had said it wanted to make advice mandatory for those looking to sell their annuities.
Despite the government initially predicting the move would allow five million people to sell their annuities, Hargreaves Lansdown said it would take no part in the second-hand annuties market due to risk concerns and suggested demand for “suitable transactions” was likely to be low.
As well as Hargreaves Lansdown’s doubts about the proposal, it emerged advisers may have shunned the new transactional opportunities too. Earlier this year, the Financial Conduct Authority conceded the creation of the second-hand market could bring “significant risk of poor outcomes for consumers”.
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