The Treasury has dismissed pensions minister Steve Webb’s plan to “unwind annuities” claiming it cannot rip up existing contracts.
At the Taxation of Pensions Bill committee hearing last week, Treasury financial secretary David Gauke said there has to be a cut off point for people accessing new freedoms, opening up a clear rift with his Liberal Democrat coalition partners.
Last month, Webb said he wants to change annuity rules to allow transfers into cash so more retirees can take advantage of pension freedoms next year.
Experts slammed Webb’s idea as “crazy” pointing to contract law, the risk-sharing of annuities and the potential firesale of insurer investments.
In Parliament, Labour MP Pamela Nash said she had constituents complaining they bought an annuity before the Budget and are angry about missing out on freedoms.
Conservative MP Gauke said: “It is very difficult to address that problem, because a contract has been entered into. Of course, one can understand and sympathise with people’s frustration, but one has to draw a point in time where the flexibility comes into place.
“Inevitably, if you draw a point in time there will be those who fall just before that point. It is extremely difficult to try to unravel contracts that have been entered into.”
He added: “There is an inherent difficulty; a consequence of providing flexibility is that there will always be a cut-off point. One could extend it and go further back, but is then left with someone else who has entered into a contract immediately before that cut-off point.
“Although I have a lot of sympathy for your constituents, it is fair to say that they were in no worse position as a consequence of these changes than they believed they were in when they entered into the contract.”