Last week the Government scrapped its plans to allow those with existing annuities to cash them in by selling them on via a proposed secondary annuity market.
When the idea was first announced by George Osborne I voiced my concerns. The scheme would have appealed to those who had been sold poor value annuities by insurance companies in the past and were now locked into them. However, did anyone really think that someone wanting to sell an annuity (which was already poor value) would get anything other than a poor price for it, probably from another insurance company? The secondary annuity market was a car crash waiting to happen as annuity customers would have been lined up to be ripped off for a second time. What happened last week was that the penny finally dropped in Westminster.
While the secondary annuity market idea was claimed to be Osborne's way of allowing existing pensioners to enjoy some of the benefits of the new pension freedoms it really was a way of avoiding tackling a systemic issue surrounding past annuity sales. While some were mis-sold by advisers many were bought straight from the insurance companies by consumers. Yet even the latter group were likely to have at least been misinformed if not mis-sold their annuities. A recent piece of research by the FCA even stated as much, yet it stopped short of saying that the problem was systemic.
If existing pensioners were able to get rid of their poor value annuities for a cash lump sum then they may have felt less aggrieved. Yet two wrongs never make a right and the secondary annuity market had the potential to multiply the number of disgruntled annuity customers.
If the Government and FCA really want to do something about legacy pension products, such as annuities. then a full-scale review (muck like the previous 'pensions-review' of final salary scheme transfers) should be carried out. Bold ideas followed by sudden U-turns never helped anybody.
