Steve Webb’s “cash for annuities” plan will make the need for individual advice even more important, industry insiders have said.
The pensions minister has floated the idea of allowing people to sell off their annuity for a cash lump sum.
Mr Webb said he wanted the law to be changed to allow pensioners to re-sell their annuities creating a “second-hand” pension market with insurance firms and others buying up these annuities and selling them in bulk.
Paul Stow, of East Sussex-based Lighthouse Financial Advice, said: “It will depend on people’s circumstances.
“I still think there is a market for people to have a regular guaranteed income and giving up the benefits of that income is not necessarily going to be in their best interests.It will appeal to some people but customers should tread carefully.”
The proposal will benefit an estimated five million pensioners who have already retired and who would otherwise will miss out from the new pension reforms set to come into force on 6 April, because they are locked into their annuity contracts.
Ros Altmann, independent pensions consultant, said: “It is likely to be a popular idea with many of the five million people who have bought annuities in the past, especially those who feel left out of the new pension freedoms and would prefer to have the benefit of their pension fund rather than a non-inflation-linked and possibly rather small annuity income for life.”
Adviser view
Andy James, head of retirement planning for national advisory firm Towry, said: “Pensioners considering cashing in their annuity for a cash lump sum should look before they leap.
“The proposal may sound attractive on the surface – a guaranteed one-off payout – but everyone considering such a move should make sure they receive individual advice first.
“This is because you would be giving up something that guarantees you an income – however small – for the rest of your life.”
