Pensioners should have right to sell annuities, says MP

Liberal Democrat pensions minister Steve Webb has announced plans which would allow existing pensioners to sell their annuities for a lump sum.

Related topics:  Retirement
Rozi Jones
5th January 2015
pension nest egg annuity retirement old people

In an interview, Mr Webb said that the plans would not be finalised by April, when retirees will be able to opt for cash over income under the pension reforms, a move that currently does not apply to existing pensioners.

If his plan is agreed, up to five million retired workers would be allowed to sell their private sector pensions for cash.

Mr 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.

"I would hope that all parties will say that people who have worked hard and built up a pension pot should be given the freedom to do what they want with it, rather than have the government tell them how to spend their own money."

However, recent research by MetLife found that 77% of retirement advisers believe that the risk of customers spending all of their pension fund is the biggest threat to the success of pension reforms

Advisers fear people using their pension funds as bank accounts and running out of money is a bigger threat than concerns over the launch of the government guidance sessions and access to advice.

Additionally, 41% of savers said they were worried about the risks of outliving their retirement income.

Kate Smith, Regulatory Strategy Manager, Aegon UK said:

“The industry is already under significant pressure to deliver the various legislative changes this year. The latest proposal from Steve Webb generates a long list of issues and risks for the industry and customers.

"The first and most obvious of these is the fact that a lifetime annuity is priced on the life and medical conditions of that particular customer. So if it was sold on, the new risks and medical conditions would need to be re-priced in as part of the transaction. This might not turn out to be attractive to either the buyer or seller. While the former annuitant would get cash in hand, they would be losing out on the certainty of a guaranteed income and risk falling back on the State. The assumption appears to be that the new flat rate state pension will be enough to live on but we know that for most it won’t. Further issues include changes to legal contracts, tax implications for both buyer and seller, clarity on how this fits with the Guidance Guarantee as well as system changes providers would need to make to accommodate this approach.

“Quite clearly the pensions Minister sees this as a big vote winner. Another winner would be the Treasury, as people selling annuities will be taxed at their marginal rate when they receive the cash value of their annuity. This could unknowingly push a lot of people into a higher tax band. If this option becomes ‘real’ it will be absolutely imperative that people get advice so they understand the implications of what they are getting into. We’re certain the FCA would be interested in this new market to ensure any new buyer is regulated to ward off an onset of more pension scams.

"Customers must be at the heart of pension reform. Already with the additional freedoms they are gaining this year come certain risks. This proposal would create further risks for customers to consider and with all the change that is in the pipeline they might be overwhelmed and confused.”

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