Sale of Annuities

Greg Mulholland Excerpts

Wednesday 19th October 2016 Commons Chamber

[Greg Mulholland (Leeds North West) (LD)]

(Urgent Question): To ask the Chancellor of the Exchequer if he will make a statement on why the Government have abandoned plans to allow savers to sell their annuities in return for a cash lump sum.

[The Economic Secretary to the Treasury (Simon Kirby)]

This Government have taken a great step forward in giving more and more people freedom to choose how they use their pension savings when they retire. We have already seen more than 300,000 people choosing to access their pension flexibly since the reforms were introduced. Alongside our efforts to do that, we also said that we would look at how we could spread that flexibility to people locked into existing annuities. We consulted extensively with the industry and with consumer groups to explore whether we could put in place the right conditions for a market to develop to facilitate that idea.

Throughout our investigations, one of our very highest priorities was to establish whether people could get a good deal through such a market. In the course of our efforts to investigate the viability of a secondary market in annuities, two things became clear. First, without compromising on consumer protections there would be insufficient purchasers of these annuities to create a competitive market in which British pensioners could get a good deal. Secondly, pensioners trying to sell their annuities would also be likely to incur high costs in doing so.

This Government have made it very clear that we want this to be a country that works for everyone, and that includes making sure that everyone gets a high level of consumer protection. It has become clear, through our extensive research, that a secondary market would not be able to offer this. Rather than being to the benefit of British pensioners, it would instead be to their detriment. It is for that reason that we are not prepared to allow such a market to develop, and we will not be taking this policy further.

[Greg Mulholland]

No disrespect to the Minister, whom I like, but the Chancellor should have been here to answer this question, particularly given the disgraceful way in which the announcement was made.

The move towards pension freedoms was the flagship announcement in the Budget just two years ago, in 2014. Originally the brainchild of the former Liberal Democrat Pensions Minister Steve Webb, it was embraced by the former Chancellor and specifically included in the manifesto on which this Government were elected. Yet yesterday afternoon, the Government announced via the press, not via this House, that they were scrapping the whole deal. This is a huge U-turn, which was announced after clear lobbying by an industry that never really subscribed to it, and a failure by the Government to build a reasonable secondary annuity market. Of course it is right that protections are put in place to ensure that people are not exploited on the secondary annuities market, but there are tens of thousands of people trapped in poor-value annuities who are eager to be able to take advantage of the new freedoms. Based on the promises in this Government’s manifesto, many of them will already have been considering how to take advantage of the plans in order to release themselves from their annuity and invest their savings differently. This announcement will leave many people having to make different decisions about their retirement from those to which they were being directed—if, that is, they have even heard of the change, given the way that it was rushed through and the way it was announced by the Government.

Can the Minister say, first, when the decision was made to drop the new pension freedom plans? Secondly, why was this decision not announced to Parliament before it was announced to the media? Thirdly, what are the Government doing to inform those who may wish to cash in their annuity that they will no longer be able to do so? Fourthly, what assessment have the Government made of people’s change of behaviour in response to the freedom, and how will this affect their financial decisions?

The pensions freedom plan was about trusting people with their money. Clearly, this Government have decided that they no longer trust people. They owe an apology to those who have spent time and money examining their options for retirement, and I hope we get one today.

[Simon Kirby]

It is easy to wish to have the cake and eat it, as the Lib Dems regularly do. It is difficult being a Minister. Sometimes we have to make hard decisions, but on balance, the interests of the consumers, often older people and the most vulnerable in our society, have trumped the desire to further increase pensions flexibility. The hon. Gentleman is disingenuous. It was one element of our pension freedoms and, after extensive consultation, it transpired that it would not provide value for money. Which?, which is totally independent of Government, has said that

“it would have been wrong to move forward without assurances that consumers could get value for money and have the necessary protections”—

assurances and necessary protections protecting those most vulnerable people in our society.