This week has seen the government make a major U-turn on pension annuities. Previously, the former Chancellor George Osborne announced in his March 2015 budget that he would be extending pension freedoms to another 5 million people who had previously bought annuities that they were now locked into.
However, in a statement released this week, the Treasury have scrapped these plans citing it could put consumers at risk.
The Treasury said it was scrapping the plans because it had become increasingly clear that "creating the conditions to allow a vibrant and competitive market to emerge, with multiple buyers and sellers of annuities, could not be balanced with sufficient consumer protections. Consumer protection is a top priority for the government, and we are not willing to allow a market to develop which could produce poor outcomes for consumers, such as receiving poor value for their annuity income stream and suffering higher costs."
Simon Kirby, the Treasury economic secretary, said: "It has become clear that we cannot guarantee consumers will get good value for money in a market that is likely to be small and limited. Pursuing this policy in these circumstances would put consumers at risk – this is something I am not prepared to do."
The Labour Party have hit back at the government over this U-turn.
"This U-turn is yet another example of Tory chaos over pensions, cancelling plans for a market for secondary annuities a few months out from its expected implementation. Only last week, the Office for Budget Responsibility stated that Tory pension reforms had blown a £5bn hole in the public finances by reducing incentives to long term saving. The Tories have no answers to the problem of providing proper security in retirement" said Debbie Abrahams, the Shadow Work and Pensions Secretary.
Reaction from the pensions industry has been mixed, with some commentators disappointed that millions will now not be able to benefit from the freedoms promised by George Osborne but others agree with the government and point to the potential risks involved, especially to consumers.
Research by SAGA has indicated that many people would have benefited from the extension of pension freedoms as according to research they have done, 58% of those who wanted to sell their annuity were receiving such a small income, they could do nothing meaningful with it.