Annuity flexibility was George Osborne’s brainchild, but this idea has now been quashed by Theresa May’s new government. Could this be the first of many U-turns the new government makes in an attempt to make its mark and state it’s new position by moving away from decisions taken by the Cameron administration?
Who is affected?
There are more than five million people with Annuities and research by Saga claimed that 58% of holders would want to sell their annuity for a cash sum. This announcement is going to be a great disappointment for many retirees, especially for expats who are already suffering from the poor Pound V Euro exchange rate at the moment. Annuity flexibility could have been the answer to many financial hardships.
Why was annuity flexibility thought to be a good idea?
Annuities have had a very poor reputation. When the new pension flexibility rules came into force, it was seen as a great opportunity to set things right for retirees. Annuities were thought to be:
• Poor value – returns are based on interest rates and bond rates which have now been extremely low for many years so annuity holders are getting and have been getting bad value for many years.
• Lack of advice – many retirees did not get the best advice and often just ended up with annuities when pensions matured as the default option from pension companies.
• Many are so small that losing the income would not be missed by a pensioner and a lump sum from the sale would make much more of a difference to the standard of living.
• Annuities often die with the holder which can leave a spouse in financial difficulty
• Completely inflexible – once started that’s it you are stuck with it.
Why is it being scrapped?
It does seem taking away this potential windfall for annuity holders and allowing the same flexibility for them as people with pensions not yet matured would have at least gone to some way in putting things right. The new government’s reasons are that there will not be a demand high enough that would allow providers to be competitive, which may lead to consumers getting a bad deal in a small and limited market. Yet if Saga’s statistics are correct there would be almost three million pensioners waiting to sign up!
In my opinion this is a backward step. Taking choice away from consumers is not good especially when the carrot has already been dangled and flexibility is offered to new retirees. If you are about start taking a pension at retirement, or still have a pension pot in the UK that you have not started taking, please seek expert financial advice on the matter early as decisions can affect the rest of your life. I have been personally advising clients in the UK or Spain for 30 years on these matters.