Was the Government Right to U-Turn on Annuity Plans?

The Government has scrapped plans for a secondary annuity market where retirees could have traded in their old pension income plans for a better deal

Emma Wall 20 October, 2016 | 1:31PM
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The Government has this week scrapped plans to introduce a secondary annuity market. Proposals were originally leaked before the March 2015 Budget, suggesting that those with existing annuity deals would be able to sell them for either a cash lump sum or trade them in for a better rate of income.

The secondary market was proposed to guard against inequality between generations of retirees – those which retired before April 2015 and could not take advantage of the pension freedoms were perceived to have got a raw deal compared to their younger counterparts. As of April last year no one is obliged to buy a compulsory annuity at retirement with their pension savings. Although annuities remain the only product on the market which guarantee an income for life they have become unpopular in recent years.

This is because annuity rates are based on the 15-year gilt yield, which back in 2007 peaked at 5.27% and in August this year fell to just 0.98% – meaning that the rates offered by annuity companies in exchange for savers’ pension pots have become progressively worse.

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Emma Wall  is former Senior International Editor for Morningstar

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