“Steve Webb’s announcement yesterday that he is considering allowing pensioners who have already bought an annuity to sell the product in return for cash is ill-timed and probably ill-conceived.
“Last year saw a number of announcements that have really shaken up the retirement income market, with the majority of the new regulations clearly benefiting consumer choice. This has inevitably caused widespread confusion and uncertainty as those heading towards retirement attempt to get to grips with the pros and cons of their new options. The speed of the changes hasn’t helped and neither has the Government making promises that not all pension providers are able to deliver.
“April isn’t very far away now and, as advisers, we are gearing up to answer a host of new questions from people who want absolute clarity around what is, after all, one of the biggest financial decisions of their life. So why choose this moment to throw in yet another radical idea, but this time with no detail or timescale attached? It’s just going to confuse people even more and may result in some choosing an unsuitable product for their circumstances as they assume more change is definitely around the corner.
“And what about the product itself? Whilst some people doubtless wish they could get out of their annuity and invest in an alternative, it is difficult to imagine many scenarios where the buyer is going to give them good value for money. In principle what is being suggested is similar to the Traded Life Policies market, which the FCA considers to be a very high risk one for the buyer – so it only works if the buyer is getting a bargain.
“It is all too easy to imagine older pensioners being bullied by their families into selling their annuities for a lump sum for their own needs, leaving the pensioner more reliant on the state. On the other side of things if you had an annuity and found yourself facing a critical illness, would that be a great time to sell your annuity, without mentioning your medical situation?
“With an annuity, as things are, you know where you stand. It gives you a certainty of income that you can plan around. Selling this shouldn’t be taken lightly, and proper advice should be sought if it ever becomes an option. I can’t imagine that it would be an option we would advise taking very often.”
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