The U.K. government has canceled plans to create a secondary annuities market, concluding that the development of a competitive market could not be balanced with sufficient consumer protections.
The U.K. government said in December it would establish a secondary annuity market to launch in April 2017 as part of plans to extend pension freedoms.
“After an extensive program of engagement with industry, financial regulators and consumer groups, the government has decided not to take forward plans to introduce a secondary annuities market because the consumer protections required could undermine the market's development,” said Simon Kirby, member of Parliament and economic secretary to HM Treasury, in a statement on the government's website.
As part of the secondary annuities market plan, the government intended to allow for more than 5 million defined contribution participants in the U.K. to sell their annuity, following a removal of related tax restrictions.
“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,” Mr. Kirby added. “Pursuing this policy in these circumstances would put consumers at risk — this is something that I am not prepared to do.”
The government estimated that only 5% of people who currently hold an annuity would take advantage of this reform.
The move was welcomed by the industry.
“Creating an open, secondary market for selling on annuities would have been no small undertaking and the risk to consumers, and by default insurers, would have been high,” said Douglas Anderson, partner at consultant Hymans Robertson.
“While some retirees may feel a sense of disappointment as they feel trapped in a product they didn't want to buy, in reality, getting value for money from cashing in annuities would have been a tall order,” Mr. Anderson added.
