The move would be an extension of already planned reforms to the UK pension system due to take effect on 6 April this year, which will allow people with defined contribution pension pots unrestricted lump sum withdrawals from their savings after age 55.
“What I’m saying is we’ve given those freedoms to people saving for a pension. Let’s give the freedom to people who’ve got a pension, got an annuity – 5 million people,” Osborne told the BBC’s Andrew Marr show on Sunday.
The move was welcomed by many life companies who offer annuities albeit with some concern about the complexities involved in implementing the change.
“We welcome considered proposals that could give customers greater flexibility in managing their own financial affairs,” said John Warburton, executive director of distribution at Prudential UK.
“We believe that there are certain circumstances in which customers might find it attractive to be able to sell their annuity in payment, and circumstances in which insurers or other parties could be interested in purchasing an annuity income stream,” he said.
“The Government is therefore right to recognise that these will be complex and difficult decisions for consumers. This, plus the considerable challenges for the industry in implementation, mean that a careful and full consultation is required,” he said.
Huw Evans, the director general of the Association of British Insurers (ABI), said that it was crucial the government consults with the industry on the proposed changes.
“These new reforms will extend choice further but people seeking to use it will also face considerable complexities, especially around the tax implications of cashing in their annuity. That’s why it is vital these changes are consulted on properly so the challenges can be thought through.”
New secondary market
Legal & General also welcomed the move, noting that the potential secondary market in annuities that would be created would not involve the cancellation of existing annuity contracts, but allow them to be sold for a potential lump sum.
“A secondary market of this sort would be characterised by retail sellers, and institutional buyers, and would potentially appeal to consumers wishing to revisit an earlier annuity purchase and create further choice,” an L&G spokesperson said.
“It would also have a number of potential advantages for pension funds and insurers such as L&G, by creating a new market in long-dated assets in the form of existing annuity contracts,” the spokesperson said.
Prudential’s Warburton said that for many customers, selling their annuity income could still be the wrong decision for their circumstances.
“They will need to consider all the issues involved very carefully, including any tax implications. In addition to the new guidance process, annuitants are likely to benefit from advice to ensure that they appreciate the real value of their annuity income in their current and likely future circumstances,” he said.
