Annuities in the UK have always been somewhat of a controversial subject. For many years, for those people with workplace pensions, annuities were the only option that they had when cashing in their pension pot on retirement (along with a small lump sum). Annuities are essentially a product that converts a person's pension pot into a guaranteed income for life in the form of a monthly payment. Whilst annuities are in many cases a good financial product there were two problems with the system as it was:
- People didn't shop around: The vast majority of people did not shop around for their annuity as they were entitled to and instead accepted the annuity that was offered by their provider that was often not as good as it could be.
- Annuities didn't suit everyone: Whilst an annuity can be very good if the person shops around, they do not offer people who may have different retirement needs much flexibility. For example, some people's retirement plans may be better suited by a lump sum.
Things changed in 2015 in a much lauded announcement by the government when Chancellor George Osborne introduced pension freedoms which gave people retiring complete freedom to do what they want with their pension pots. No longer being forced to buy an annuity, people could still choose to do so but also choose to take out a lump sum, save in an ISA or invest in property for example.
There was also a promise by the Chancellor that promised 5 million retirees who have already taken their pensions that they would be allowed to swap their paltry monthly pay-outs for a lump sum. However, in October 2016, the Treasury reneged on their promise and retirees are now not able to swap their annuities at all.
A recent article in ThisIsMoney.co.uk has exposed the impact of this U-turn by the government on pensioners, many of whom who have taken out credit such as loans or credit cards in the belief that they would be able to access their pension as promised by the government. This has plunged thousands of pensioners into crippling debt, with many of them facing severe financial difficulties.
Former pensions minister Ros Altmann has hit out at the U-turn by the government:
"It's just not good enough. The Government cannot wash its hands of these people. It passed laws and promised pensioners they would be able to cash in their annuities. Savers believed that the Government would keep its word, and they have been terribly let down."
A Treasury spokesman says the Government has committed £45 million to the Money Advice Service, which offers free financial help.
"The decision not to introduce a secondary annuity market involved extensive engagement with financial regulators, consumer groups and industry, during which it became clear that consumers would likely receive poor value for their annuities and be put at risk."