Pensions minister Steve Webb wants pensioners to be able to trade in their annuities for cash to extend pension freedoms to those who have already retired.
In an interview with The Daily Telegraph, Webb said pensioners and major insurers had shown support for the plan, which would see retirees sell their annuity for an upfront cash payment. The changes would also create a “second hand” annuity market, allowing insurers and other firms to bundle up individual annuities and sell them on in bulk.
Webb said: ““I want to see people trusted with their own money wherever possible. 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 upfront capital to regular income, I can see no reason why this should not be an option.”
Webb argues up to five million pensioners who have already retired would stand to benefit from the proposals, who are currently frozen out from accessing the pension freedoms set to come into force in April.
He said: “As things stand, once an annuity is in payment there is very little that an individual can do if they would prefer instead to have a cash lump sum or some combination of cash and reduced income.
“But, given that we now accept that individuals should be given more control over their retirement savings, I would be concerned if we were to exclude up to five million people who are currently receiving annuity income.”
Under the plans, once an annuity had been sold payment would be redirected from the policyholder to another account holder, which would likely be an insurer or pension fund. The pension would continue to pay out until the original policyholder dies.
Webb said protections would need to be put in place to protect the vulnerable if they choose to trade their annuities for cash.
He added: “I have discussed this idea with a number of major players in the industry and there is considerable interest and enthusiasm for taking it further. “It is possible to imagine, for example, a market in second hand annuities with perhaps some financial institutions buying them from individuals and bundling them up to sell on in bulk.”
Webb wants to launch a consultation on the proposals agree a Coalition plan for the reforms ahead of the general election in May.