The Government scrapped plans to allow pensioners to cash-in their annuities yesterday, performing a u-turn on George Osborne’s flagship reform after concerns were raised about a new “mis-selling timebomb”.
The Treasury said the proposed freedoms, due to be introduced in April next year, “would put consumers at risk”. Some consumers were set to face 20 per cent fees when they sold their pension pots, and analysts have warned that the reforms left people’s life savings up for grabs by scammers.
The reforms, tabled by Osborne in the March 2015 budget, were supposed to allow 5 million people to sell schemes they were locked into for a lump sum.
Bought by workers with their pension funds when they retire, annuities pay a regular income for life, but many currently pay meagre returns.
But yesterday the Treasury said that “creating the conditions to allow a vibrant and competitive market to emerge, with multiple buyers and sellers of annuities, could not be balanced with sufficient consumer protections”.
“Consumer protection is a top priority for the government, and we are not willing to allow a market to develop which could produce poor outcomes for consumers, such as receiving poor value for their annuity income stream and suffering higher costs.”
The major u-turn shows Theresa May is increasingly willing to dispense with policies of her predecessors.
Tom McPhail, head of retirement policy at investment firm Hargreaves Lansdown described the policy as “George Osborne's baby.”
“The fact that it has now been dropped could be indicative of a new government which is progressively shedding the legacy policies of the Cameron/Osborne era and is increasingly pursuing its own agenda.”
Industry body, the Association of British Insurers, which enthusiastically backed the reforms yesterday agreed with the u-turn. “We agree with the Government that the secondary annuity market came with considerable risks for customers, including from unregulated buyers,” a spokesperson said.
Shadow work and pensions secretary Debbie Abrahams said: “This U-turn is yet another example of Tory chaos over pensions, cancelling plans for a market for secondary annuities a few months out from its expected implementation.
“Only last week, the Office for Budget Responsibility stated that Tory pension reforms had blown a £5bn hole in the public finances by reducing incentives to long term saving. The Tories have no answers to the problem of providing proper security in retirement.”
