Annuities cash-in idea has 'potential', says insurer

Controversial proposals to allow retirement savers the right to sell their annuities for cash have received a boost after one of the country's leading insurers said the idea "has potential".

Standard Life, the Edinburgh-based insurer, said the proposal, floated by Steve Webb, pensions minister, was worthy of consideration and said it would welcome formal consultation on the idea.

"We wouldn't describe it as 'crackpot', as some have," said Jamie Jenkins, head of pensions strategy at Standard Life. "I can understand the rationale of someone wanting to cash in a small annuity, as the minister has suggested."

Under the proposals, pensioners would be able to sell their annuity income to a buyer such as an insurance company for a cash lump sum. Rules, which are changing in April, effectively forced millions of retirees to exchange their pension savings for a guaranteed income for life, in the form of an annuity, when they retired.

"You cannot ignore the anomaly in the recent policy which did not extend new freedom [to cash in pension savings] to existing annuitants," added Mr Jenkins.

"You cannot ignore requests to consider [the proposal]. The idea has potential."

However Mr Jenkins said a second-hand annuity market "could be potentially complicated," and the message that selling annuities would send about the value of a guaranteed income "would also need to be considered".

Standard Life is the first household name publicly to express interest in the proposal. Its annuity sales in 2013 contributed about £45m to the group's operating profits. In that year, about 320,000 annuities were sold across the market, down from about 400,000 in 2012, the period when annuity rates were reaching record lows.

<

The tabular content relating to this article is not available to view. Apologies in advance for the inconvenience caused.

"Obviously we cannot legislate this side of the election, but we can do work this side of the election, and so far I have had positive feedback within government," he said.

Under his proposal a saver's annuity contract would not be unwound, but traded in a second-hand market, as some endowment policies are currently.

Debating the proposals on Radio 4's Moneybox, Tom McPhail of Hargreaves Lansdown, the investment manager, described the idea as "crackpot", saying it could put vulnerable consumers, such as the sick, at high risk of being ripped off.

Alan Higham, a fellow of the Institute of Actuaries, has also said it would "be almost impossible to create an orderly market to allow individual annuities to be bought and sold".

However, Ros Altmann, the government's business champion, said in the interests of fairness, people should be able to choose whether to undo their annuity.

"Of course they will have to pay for the option of doing so, but that will be their choice," said Ms Altmann. "They will not be forced to 'undo' their annuity, but they were forced to buy it in the first place by government and industry's inflexible rules."

Pamela Kelly, a retired teacher from Sussex, is one of millions of pensioners who were forced to buy an annuity under old rules which are to be relaxed from April.

The 66-year-old would welcome the opportunity to sell an annuity that pays her £9.50 per week and which she bought just months before George Osborne announced radical changes to pension rules in March last year.

"This miserable amount makes no difference to my life and I worked out that I would need to survive for about 19 years before I recouped the amount in the pot," she said.

Pamela also has a final salary pension, plus income from the state pension, and believes her small annuity could be put to better use, particularly with plans afoot to move home.

< > "It would be really helpful to think I could have that lump sum to help with moving because it's an expensive business and at age 66 there are limits to how you can finance things," she said.

"It would be an excellent idea to allow people to sell their annuities provided there is no underhand price fixing."

Pamela said some people were "bound to make bad decisions" but legislation should not be based on worst-case scenarios.

"It's no good politicians currying favour by trotting out the 'people aren't stupid' line and then denying choices when choice is such a mantra the rest of the time," she said.

"Rather than choice I think the key issue is fairness."

© The Financial Times Limited 2015. All rights reserved.
FT and Financial Times are trademarks of the Financial Times Ltd.
Not to be redistributed, copied or modified in any way.
Euro2day.gr is solely responsible for providing this translation and the Financial Times Limited does not accept any liability for the accuracy or quality of the translation