Pensions: Sale of Annuities

Baroness Drake Excerpts

Wednesday 19th October 2016 Lords Chamber

[Lord Young of Cookham]

I am enormously grateful to my noble friend, who has good knowledge of the workings of the City. As he implied, it has become increasingly clear that creating the conditions that will allow a vibrant and competitive market to emerge, with multiple buyers and multiple sellers of annuities, could not be balanced or achieved without sufficient consumer protection. After having drilled down and consulted regulators, consumer organisations and other stakeholders, the Government have come to the conclusion that it would not be in consumers’ interests to continue with this policy.

[Baroness Drake (Lab)]

I agree with the Government’s decision and I believe that the Chancellor has called time on a bad policy. I feel it now and I certainly believed it when it was put. The risk to annuity holders of trading in a secondary annuity market are extremely high and the complicated regulatory requirements to protect them in such a market would undoubtedly mean that the costs would have been transferred to the consumer. It was also evident that there would be insufficient purchasing in that market. All these issues were raised by my noble friend Lord McKenzie, other noble Lords and me when this enabling legislation was debated. It was clear what the problems were but the Government were determined to push ahead. Why did the Government put enabling legislation in place before they had satisfied themselves that the creation of a secondary annuity market was a viable policy, when it was absolutely evident that all the problems which have now been deployed for not proceeding with a secondary annuity market existed then and people articulated them very clearly? That is the problem. It was clear that the secondary annuity market would not work, so why was enabling legislation rushed through?

[Lord Young of Cookham]

In all seriousness, I commend the noble Baroness on her foresight in being able to see in March 2015 that this was not a runner. That was not the view of many financial commentators at the time. It was seen to be consistent with those who had not yet reached retirement age and therefore had the freedom not to have an annuity. It was seen to be right to extend that freedom to those who had already purchased an annuity. In principle, it was the right thing to explore but, as I said in response to my noble friend, as we drilled down it became clear that there was not the secondary market that was necessary. Moreover, those who were going to sell their annuities would have had to have a medical examination, they would have had to pay brokerage charges and they would probably have faced administrative costs. It would have reached only a relatively small percentage. For all the reasons she has given, we have come to the same conclusion as the noble Baroness, albeit a little after her.