12th March 2015
People who had taken out an annuity prior to the introduction of the new pension freedoms may be able to transfer the income in return for a cash payment according to proposals expected to be outlined in next week’s Budget.
At present annuities cannot be re-sold and as such the government and retirement industry would have to quickly to consider how to allow for such radical changes.
On the surface, commentators believe the idea appears to be an attractive option for those who wish the peace of mind afforded by a guaranteed income for life but who also want the option to ‘sell’ all or part of the income from their annuity in return for a cash lump sum
The proposals appear to cover the sale of future annuity cash-flows to another provider without the annuity contract being cancelled. Accordingly it can benefit current annuitants without interfering with the existing contract.
Steve Groves, CEO of pension specialist Partnership said believes the idea in principle is broadly very positive for consumers. He highlighted that on one level the idea that someone could benefit from a guaranteed income for life but know they could access cash for a rainy day, can only make annuities more attractive to prudent savers.
He said: “However the possibility of the introduction of these reforms is distant, as any Consultation following the Budget will inevitably take place after the May 2015 General Election and a potentially different administration.
“The devil is, as always in the detail, and this proposal would inevitably require the development of a mature market and appropriate regulations to safeguard consumers.”
Steven Cameron, Aegon’s regulatory strategy director added: “There’s no doubt there are some people who have bought annuities in the past who rightly or wrongly feel they missed out on more flexible options. Proposals to allow them to sell their future annuity instalments in return for a lump sum are likely to have an appeal.
“But it won’t be right for all – and for many, could be a very bad decision so it will need to be carefully designed to offer consumer support and protection.”