Scrapping of secondary annuity markets – a backpedalling on Pension Reforms?
In a further nail in the coffin of the Cameron-Osborne legacy the government announced this week that it would be scrapping one of George Osborne's flagship proposed reforms to the pensions market – a proposed secondary market for annuities.
The plans to allow pensioners to sell their retirement annuities were intended to remove the punitive tax restrictions preventing pensioners from selling their annuity income in return for a cash lump sum. The proposed reform would have had the effect of permitting those who missed out on the Pension Freedoms introduced in April 2015 to access immediate cash from their pensions. The proposed start date for the secondary annuity market was April 2017.
However, it seems that the current government has little time for "George Osborne's baby" citing concerns that the proposed secondary market would not keep consumers "properly protected".
In a statement released earlier this week the government explained, "It has become clear that creating the conditions to allow a competitive market to emerge could not be balanced with sufficient consumer protections."
The government's change of heart has not gone unnoticed; during yesterday's PMQ's the Economic Secretary to the Treasury was questioned on the reasoning for the decision. The Economic Secretary to the Treasury stated that having consulted "extensively" to "establish whether people would be able to get a good deal", the government has decided "we are not taking this policy further".
The government's decision to scrap its proposal for a secondary annuity market has been labelled "a U-turn". However it arguably did not require physic powers to forecast that the proposals might not materialise. The proposals faced their fair share of critics from both the industry and the regulator. Notably one service provider said that they would play no part in the secondary annuity market and the FCA'S consultation on the proposals released in April this year identified that it could lead to "significant risk of poor outcomes for consumers".
It perhaps goes too far to say that the government is backpedalling from Osborne's wider Pension Reforms off the back of the decision to scrap the proposed secondary annuity market. But the step perhaps raises questions as to the PM's commitment to preserve her predecessor's pension legacy. We will no doubt know more following the Chancellor's Autumn Statement on 23 November 2016.