"It has become clear that we cannot guarantee consumers will get good value for money in a market that is likely to be small and limited."
In a statement, the government said that after engaging with industry, financial regulators and consumer groups, it became increasingly clear that creating the conditions to allow a "vibrant and competitive market to emerge", with multiple buyers and sellers of annuities, could not be balanced with sufficient consumer protections.
It added that while many firms have shown they are willing to allow customers to sell their annuities, there will be insufficient purchasers to create a competitive market.
Hargreaves Lansdown confirmed last month that it would not be offering a broking service for investors to sell their annuities, citing the 'potential risks to consumers' and expected low demand for suitable transactions.
The Personal Finance Society had also urged the FCA to make Pension Wise guidance sessions compulsory for consumers planning to sell their annuities, stating that consumers need to be made fully aware of the associated financial risks.
The Economic Secretary to the Treasury, Simon Kirby, said: "Allowing consumers to sell on their annuity income was always dependent on balancing the creation of an effective market with making sure consumers are properly protected.
"It has become clear that we cannot guarantee consumers will get good value for money in a market that is likely to be small and limited.
"Pursuing this policy in these circumstances would put consumers at risk – this is something that I am not prepared to do."
Tom McPhail, Head of retirement policy at Hargreaves Lansdown, commented: “This will no doubt come as a disappointment to some annuity holders who were looking forward to restructuring their retirement income, however it is the right decision. After extensive research, at the beginning of September Hargreaves Lansdown, the UK’s largest annuity broker announced that it would not be participating in the secondary annuity market. Our reasons for this decision were very similar to the government’s. The risks to the vast majority of annuity holders outweigh the benefits for the small minority who could benefit.”
“This is also perhaps an interesting political change of direction. The pension freedoms were George Osborne’s baby. The secondary annuity market concept was enthusiastically supported by the two most recent pensions ministers. The fact that it has now been dropped could be indicative of a new government which is progressively shedding the legacy policies of the Cameron/Osborne era and is increasingly pursuing its own agenda.”
Steven Cameron, Pensions Director at Aegon, added: “All the signs were the secondary annuity market would have been a pension freedom too far. Giving up a guaranteed income for life is a huge decision and not the right one for the vast majority. The risks and complexities for the many far outweighed any possible benefits for the few. We welcome the Treasury making this brave decision on grounds of consumer protection.”
