Back in 2015, a controversial idea was pitched regarding pension freedoms. Within that idea sat the concept of allowing pensioners to sell their annuity to insurance companies. While the government initially allowed the development of the program to go forward, they have since changed their mind.
Why the sudden change of direction? It’s actually pretty simple.
First and foremost, the concern about pensioners being lured into bad deals is the primary issue. The original idea required the creation of an effective market. Through careful crafting, consumers could be provided options that would provide a good value. However, the presence of such a fair system cannot be guaranteed.
Since the government can’t promise they could create or control a fair market, they decided to withdraw the idea.
Sales and Fees
Even if selling an annuity was reasonable, the process would be wrought with people looking to take advantage of the procedure. Insurance firms and brokers could charge for the service. And leads to less money in pensioner pockets.
To mitigate risk, and build a profit base, the margin of error would be skewed in favour of the insurance company. Couple that with the difficulty consumers would experience in understanding the value of their annuity, and you are going to see an even more imbalanced system.
Vulnerability of Pensioners
The target market of these annuity sales are older citizen. Often, this refers to pensioners who may have limited income outside of the annuity. This means that a poor deal has long-term consequences in regards to their safety and livelihood.
With the prevalence of pensioner scams, it is understandable that there are concerns. Cold calls offering money-making “opportunities” have relieved more than one pensioner of their savings. And the ideas behind how these annuity sales would work leave the door open for similar sounding scams.
Even if the company is legitimate, there is no guarantee that a fair deal would be offered.
Concern in the Industry
Certain annuity brokers were even reluctant to participate. The fear was that the potential risks to pensioners outweighed the chance of benefit. In some cases, brokers were worried that future regulations would lead to compensation if an annuity was previously undervalued during the sale.
However, some insurance companies were disappointed by the decision. This side of the argument states that the number of pensioners forced into subpar annuities have few options. Often, the payments are small enough to prevent them from doing anything meaningful with the money. The idea was that, by offering a sales option, pensioners could receive an amount that would let them handle certain obligation.
And That Leaves Us…
Since the program never got off the ground, all of the loss is at best theoretical. While those who were planning to sell their annuities may be disappointed, no harm has been done at this juncture. Everyone can continue on as they were and put this potential mess behind them.
It can be reassuring that many felt the risk to vulnerable members of the country was too great. With the number of scams targeting pensioners, it might be better to take the safer road.