Some annuity holders are being given the opportunity to sell their plan with other providers ‘likely’ to follow, despite the government closing the door on annuity sales after it reneged on plans announced in the 2015 Budget to create a secondary annuity market.
The offer is being made by Phoenix Life to policyholders aged between 55 and 85 with an annuity paying no more than £300 a year that was purchased before the pension freedoms were introduced in April 2015.
The company has just started mailing the estimated 20,000 eligible customers who will have six weeks to decide whether they take up the offer. How much they are offered will depend upon their circumstances including their age and the type of annuity they hold, but could be close to £2,000.
However, while only a limited number of policyholders will be able to benefit from the offer from Phoenix Life, one pension specialist Moneywise contacted suggested more providers are likely to follow suit.
Jamie Smith-Thompson, managing director of pension adviser Portafina, says he wouldn’t be surprised if more providers took similar action. 'Will other insurance companies follow suit? I think it is likely, provided it is in their own interests. Phoenix made no secret that it is costing it money to run these very small annuities so it works for all parties to cash them in.'
He adds: 'I can’t see this extending to larger annuities any time soon though.'
‘I would like to see more companies helping customers in this way’
Leading pensions campaigner and former pensions minister Baroness Ros Altmann, CBE, says Phoenix’s offer makes perfect sense. 'I am delighted to see that Phoenix Life is acting to ensure at least some of its customers who bought annuities which they no longer want or need, are able to exchange their income for a lump sum. I would definitely like to see more companies helping their customers in this way.'
However, other insurance companies Moneywise spoke to, appeared to be less keen, despite the cost savings selling these plans could potentially offer.
A spokesperson for Aviva says: 'We remain of the view that cashing in annuities would not represent a good outcome for customers for a number of reasons. We do not therefore offer customers the option to cash in their annuity.'
Andrew Tully, pensions technical director at Retirement Advantage took a similar line. He comments: 'Following the government’s decision to ditch the creation of a secondary annuity market, I think it is unlikely we will see a rush of other providers following suit.'
He adds: 'It isn’t clear if customers who decide to trade their income for a cash lump sum will get good value for money, but I can see how this could be attractive to some people.'
This article was originally written by our sister publication Moneywise.
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