Plans to allow pre-2015 annuity holders to sell their retirement income for a cash lump sum were scrapped two years ago.
A campaign group is urging the government to reconsider extending pension freedoms to the large number of longer-standing retirees who have so far been denied the chance to cash in their annuities.
In total around five million individuals bought an annuity prior to the pension freedoms coming into force in April 2015; this group of retirees therefore never had the option of choosing instead to draw an income directly from their pension fund. Nor could they opt to cash in some or all of their pot.
The creation of a secondary annuity market, planned for launch in April 2017, was lined up as a solution to enable those with an existing annuity to cash in their contracts if they wished.
But the idea never saw the light of day, with the government u-turning just months before the legislation was due to come into force. At the time the government said it could not guarantee consumers would get good value for money by selling their annuity.
Moreover, there was also a lack of appetite among the big pension providers to buy back annuities from individuals on an open market, a point that Money Observer raised at the time.
For any market to function properly, there need to be willing buyers and sellers. The fact that providers had shied away from involvement in this case was the other big driver behind the government deciding to scrap the idea of a secondary annuity market.
Various providers, including Aegon and Royal London, even ruled out buying back their own annuities.
Now, two years after the proposals were scrapped, the Your Pension, Your Choice campaign has filed a submission to HM Treasury ahead of the Budget later this month, arguing the case for the government to revisit options for granting pension freedoms to pre-2015 retirees.
A campaign spokesperson described the situation as ‘a towering injustice’. He added: ‘Over five million people are still waiting for the government to right this wrong, as it said it would in 2015.’
The campaign has won the backing of a couple of members of parliament, including Liberal Democrat Stephen Lloyd, who serves Eastbourne and is the Lib Dem spokesperson for work and pensions.
According to Lloyd it is vital that the government reconsiders its position. He adds: ‘The principle of pension freedoms is the right one, but not if millions are unable to take advantage of it.
‘We must work towards the next logical step, which is to ensure pre-2015 retirees are able to flexibly access their retirement savings. The Chancellor now has the opportunity to correct this.’
But, as things stand today, it looks unlikely that the government will u-turn on its own u-turn anytime soon. As recently as April the Treasury reiterated its stance, with John Glen, city minister and economic secretary to the Treasury, stating in parliament that there were no plans on the table to reverse its decision.
At the time he said that ‘consumer protection is a top priority for the government and it would not have been acceptable to allow a market to develop which could produce poor outcomes for consumers.’
The pension freedoms have changed the retirement landscape dramatically, with annuities no longer the default route for generating retirement income.
The freedoms have proved immensely popular. According to the latest government statistics to the end of July, more than £17 billion has been paid out in flexible payments since April 2015. Income drawdown has rocketed, while cash withdrawals have become commonplace. The big losers have been annuity providers, owing to annuity sales slumping.