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18 October 2016

Philip Hammond scraps another George Osborne plan

A secondary annuity market is toast. 

By Julia Rampen

If the new Tory government hadn’t delivered enough two-fingered salutes to George Osborne, the Chancellor Philip Hammond has just gone and cancelled the market for secondary annuities. 

If you’re less than overwhelmed, let me explain.

Back in 2014, Osborne unveiled a surprise package of pensions reforms, declaring “no one will have to buy an annuity”. 

The new “pension freedoms” made it much easier for retiring workers to get access to the cash in their pension. Over 55s could choose between spending the money on whatever they wanted, or converting it into an annuity. This is effectively a deal where you are paid a certain income every year, for the rest of your life. 

This wasn’t just a bung to pensioners – annuity rates have been low in recent years, so retirees were getting less for their savings. For those with tiny pensions, it could make sense. But many in the consumer finance world felt the government was encouraging pensioners to act recklessly. 

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Then, in 2015, Osborne announced a secondary market in annuities. The idea behind it was that retirees who already had bought an annuity could sell it on for cash. 

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This scheme was expected to launch in 2016, but it was delayed to 2017, and finally, Osborne’s successor has scrapped altogether.

Simon Kirby, the Economic Secretary to the Treasury, said: “Allowing consumers to sell on their annuity income was always dependent on balancing the creation of an effective market with making sure consumers are properly protected.

“It has become clear that we cannot guarantee consumers will get good value for money in a market that is likely to be small and limited.

“Pursuing this policy in these circumstances would put consumers at risk – this is something that I am not prepared to do.”

Hammond has already distanced himself from Osborne’s flagship austerity plans and axed the deficit target.

While the former Chancellor may feel miffed at another part of his legacy being so quickly erased, this is nothing to what the pension fraudsters will experience right now. The elderly are already a favourite target of white collar criminals, and pension fraud tripled in the wake of the original pension freedoms (which, for now at least, remain untouched). Disappointment doesn’t cover it…