Perhaps I was having a grumpy day (a blip in my otherwise sunny persona) when I wrote/ranted about the truly horrible prospect of a secondary annuity market. Or perhaps it was just a natural reaction to that horrible prospect. In any case, a few aspersions were cast in my direction suggesting I was trying out my famous impression of a certain Dr Bruce Banner after realising someone had taken his last Jammy Dodger.
Three points in my defence:
- I was far from alone in my views.
- It was a really bad idea.
- You should never take Dr Banner’s last Jammy Dodger.
Ergo, Hulk smash secondary annuities.
One of the very few good things to come out of the Brexit result (if not the only one) was the possibility that siphoning Civil Service resources to extricate the UK from the EU would mean the demise of certain projects. And where better to start?
Sadly, it was not to be. The secondary annuity wheels had already starting grinding and that, it seemed, was that. Despite the industry putting on a rare show of unity against the new market, it was made clear that the public would not be denied this flexibility. Even if it came gift wrapped in swathes of ‘significant risk’ with a big ‘for most people, retaining their annuity will be the best choice’ bow.
Governments will legislate, regulators will regulate and scam artists will do what they do. Despite everyone’s concerns, no-one can control how consumers behave and we were bracing ourselves for the inevitable horror stories. But, while providers will provide, and brokers will, er, broker, they don’t have to and things started to look a bit interesting when Hargreaves Lansdown announced that it was having nothing to do with the whole thing. The basis of this decision echoed what many of us have been saying all along, that despite being a good option for a few, the risks to the many massively outweigh this benefit. Greater good and all that.
Now, finally, it seems that sense has permeated the Treasury as it concluded that “over the past few months, following a wide range of discussions, it has 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.”
However I or anyone else feels about secondary annuities, it would have provided an exit path for a small proportion of annuity holders for whom cashing in would be the right thing. Removing that possibility is a blow for them but will not have been done without exploring all possible options to make it happen while minimising the risks.
Treasury estimates were that around 5% of the UK’s 5 million annuity holders would have taken advantage of secondary annuities. That’s an initial market of 250,000 but we’ve no way of knowing how many of them would have been making the right decision and how many the wrong decision. And that’s the basic problem which has corrupted the idea from the outset. Not the idea of swapping out an annuity for a lump sum, but the endless list of risks and ways of separating the consumer from more of their fund than can be justified.
There’s also an unavoidable political slant to this news. Would the same decision have been reached had Mr Osbourne kept the keys to No 11? We’ll never know but the smart money says it would have been a lot less likely. Might more Gideon-smashing follow? The Autumn Statement is suddenly looking a lot more interesting.