Any old pensions? Second-hand annuities plan shelved by new government.

The Treasury has decided to shelve plans designed to enable millions of pensioners to claim cash lump sums in return for sacrificing their annuities.  This is due to widespread apprehension that pensioners could end up being fleeced a second time by the insurers selling the policies.

The scheme was announced in 2015 to provide help for suffering savers holding lifetime annuity deals paying only a meagre annual income.  The first hints of weaknesses in the scheme came earlier this year as several pension funds were reported to be refusing to play ball.

Then came the bombshell warning from Pensions Regulators that pensioners might be “ripped off” to the tune of 20 per cent when they actually came to cash in their pensions.

Has there been an outbreak of common sense in Hammond’s Treasury?

Despite the disappointment that some pensioners would remain wedded to poor annuity deals (and advisors would lose a valuable business development opportunity), experts are suggesting that the government was right to finally commit a full U-turn because the policy was fundamentally flawed.

One senior consultant pointed out the following:

“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.”

The “secondary annuity market” was to begin next year, with the aim of giving millions of pensioners the opportunity to dump undesirable policies and access cash in its place.  It was bundled up in the launch of the ‘pension freedoms’, a pet project of the out-of-favour Osborne, and a concept favoured by recent Pensions Ministers.

The scrapping of such plans thus represents an intriguing change of direction by Hammond’s newly pragmatic Treasury.  It appears that there is a pleasing element of common sense in evidence.  Rob Yuille of the Association of British Insurers commented:

“This is the right decision for the right reasons. The industry has consistently supported the freedom and choice reforms, but we agree with the Government that the secondary annuity market came with considerable risks for customers, including from unregulated buyers.”

Pension contribution limits for tax year 2016/17

Presently you can contribute up to a maximum of your yearly earnings, with a limit currently set at £40,000 per annum.  You may also use the “carry forward rules” to use the previous three years’ pension limits.

Then, once you have begun drawing your pension, the annual limit will be incrementally reduced to £10,000.  It is also worth noting that the lifetime pension limit has been reduced this year from £1.25m to £1m.  For HNW and UHNW this presents a problem; how does one plan for a fulsome retirement within such limits?