Pensions minister plans to let existing pensioners surrender their annuities
05 January 2015
Pensions minister Steve Webb wants to extend freedoms announced in the 2014 Budget to give up to five million existing pensioners the chance to trade in their annuities for cash
We are grateful to The Daily Telegraph for this report on the interview given to that publication:
Steve Webb, the Pensions Minister, told The Telegraph he wanted to change the law to enable these pensioners to sell their annual lifetime incomes – known as “annuities” - to the highest bidder at any time after they have retired. Pensioners may decide they would rather have cash than a guaranteed income stream to give money to children, to pay for home renovations or to invest.
The plan will be particularly appealing to those who have more than one pension as a result of working for several employers, and who would prefer to have money "up front" than to receive a small amount from a low-value pension each year. The reform would also create a new market in “second hand” pensions, as insurance firms and other companies buy up individuals’ annuities, bundle them together and sell them on in bulk.
Mr Webb said he had been urged by pensioners to introduce the reforms, while several major pensions companies and insurers had also expressed “considerable interest and enthusiasm” for the plan.
“I want to see people trusted with their own money wherever possible,” he said. “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.
“No-one would be obliged to do so, but for those who would prefer up-front capital to regular income, I can see no reason why this should not be an option.”
An estimated 400,000 people who retire each year use the money they have saved while working to buy an annuity – an insurance product which pays an annual income for the rest of their lives. For many people, it is the biggest financial decision they will ever make. However, in recent years annuity rates have plunged, trapping many pensioners in poor-value schemes that have destroyed the value of their lifetime savings.