The Treasury yesterday announced that it has cancelled its plans to create a secondary annuities market due to concerns over consumer protection.
It said that after an extensive programme of engagement with the 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.
Was a secondary annuities market ever going to work?
The idea of a secondary annuities market on the face of it was a nice idea, to allow those that had already retired with annuities access to the new pension freedoms. It was also positively viewed by those members receiving very small levels of annuity income, which if sold would generate a more useful lump sum for many.
Its success however was always going to be dependent on the creation of an effective market, something that would be fraught with complexity and difficult to achieve. Although, this decision denies access to the freedoms for those already in retirement, my view is that this is the best outcome.
The risks associated with the valuation of such annuities, high fees eroding capital and the appeal to potential scammers, would have presented too great a risk to the consumer. Such risks could have also been detrimental to consumer confidence in the savings and pensions market, something auto enrolment and other policy initiatives are trying to address to enhance the public’s engagement in saving for their future.