5th January 2015
Pensions minister Steve Webb has declared that he wants to extend the new pension freedoms to those already retired by allowing them to trade in their annuity contract.
From April this year, pensioners will be able to access their retirement pot as one lump and spend the cash as they please.
Traditionally many retirees have swapped their nest-egg for an annuity which provides them with a guaranteed income for the rest of their lives.
But annuity products have often been viewed as bad value and the Webb now wants those who have already signed up for annuity to be able to sell it on.
In an interview with The Telegraph this weekend, he said retirees and annuity providers have already shown their support for the initiative. Webb said: “I want to see people trusted with their own money wherever possible. I have already heard from people around the country who would like to see this change made.
“I want to see if we can get these freedoms extended to those who are receiving an annuity but who might prefer a cash lump sum.
“No one would be obliged to do so, but for those who would prefer upfront capital to regular income, I can see no reason why this should not be an option.”
“I would be concerned if we were to exclude up to five million people who are currently receiving annuity income.”
Commenting on a potential second hand annuity market, Tom McPhail head of pensions research at Hargreaves Lansdown said: “There is an obvious appeal in finding a way to extend the pension freedoms to existing annuity holders, giving them the option to take their money back as a lump sum if they want. There is overwhelming support for the new pension rules and with an election looming, unlocking these existing contracts would be a vote winner.”
But McPhail urged that ultimately he does not believe such a programme could work. He added: “Similar schemes using life insurance contracts in the past were labelled by the FSA as ‘high risk, toxic products.’
“It is also worth noting that most market participants who have the necessary skills to engage in such transactions are the same insurers, actuaries and pension companies who are all currently working flat out to deal with all the other pension changes the government has thrown at them in recent months.”