Cash for annuities: How Govt was blind to what industry already knew

Natalie Holt, journalist with Money Marketing Photo by Michael Walter/Troika

U-turns are often seen as a negative. When they are made by the Government, they make the politicians behind them look inept and ripe for ridicule. Take the plan to turn all schools in England into academies for example. Or the row over disability benefits. Or working tax credits. Or the issue perhaps closest to advisers’ hearts, pension tax relief reform.

Last week we had the shock announcement that with less than six months to go until its introduction, the Treasury had decided to scrap plans to create a secondary annuity market. In the case of this particular U-turn, the Treasury is trying to position it differently. They say the decision to choke off the market before it has even begun was about consumer protection first and foremost. It was about failing to secure assurances on value for money for those selling their annuities, and the fact that the anticipated paltry size of the market did not warrant the time and effort involved.

The depth of feeling and the strength of the concerns around secondary annuities were plain for all to see. Former pensions minister Ros Altmann was one of the lone voices arguing it was right to extend freedom and choice to annuitants (and continues to be so).

Advisers and providers alike have breathed a collective sigh of relief in the wake of the Government’s announcement. Avoiding the creation of a market which few people wanted to be a part of is all to the good. The last thing advisers need is another insistent client-type situation.

But the fact is this has all come far too late in the day. Providers have lost time and potentially money in expending all this effort on something that is no longer going to materialise.

Advisers will have had to manage clients’ expectations, and savers may have got their hopes up that they could cash in their annuity only to have those hopes dashed at the eleventh hour.

Theresa May’s Government is now firmly in place, and the arrival of Chancellor Philip Hammond has signalled a new era in Treasury policy. They and Hammond’s Treasury cohorts are well within their rights to pull back on decisions made by their predecessors.

But it is still an embarrassing U-turn when it takes the Government the best part of two years to realise the secondary annuity market is unworkable, something the financial services industry established at the outset.

Natalie Holt is editor of Money Marketing – follow her on Twitter here