OpinionMar 16 2015

Question of justice remains for many past annuitants

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Question of justice remains for many past annuitants
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It was clearly one of ‘those’ leaks.

Last Thursday, FTAdviser sister newspaper the Financial Times reported comments from “Whitehall sources” about a meeting being held between senior coalition figures to discuss a Budget plan to extend pension freedoms to millions of legacy annuitants.

Yesterday (15 March), the government confirmed in a press release (and George Osborne told Andrew Marr on BBC1) that it would legislate to create a secondary annuity market.

If you believe that this decision was really up in the air at that Friday meeting, you will believe anything. Pension minister Steve Webb has been championing this cause for months.

Governments have become adept at using strategic leaks to own the news agenda in the weeks leading up to the set piece Budget speech, while leaving enough dry powder for a big surprise on the day. Mr Osborne has turned this into an art.

In terms of the specifics: the government will legislate to allow annuities to be re-assigned without incurring a 55 per cent unauthorised tax charge. A consultation is being launched alongside the Budget on appropriate safeguards.

There has been much ink split in the past few days already, including on FTAdviser, with the market polarised into those thinking this is an overdue extension of last year’s pension liberalisation and doom mongers warning of consumer detriment.

The reality is somewhere in the middle. With consensus estimates on the discounts individuals could face settling at up to 20 per cent, it will be imperative people are aware what they are getting in to and the longer term implications.

That being said, where there is a willing buyer and an (informed) willing seller, who is anyone to stand in the way?

Many people have a minuscule monthly income doing nothing for them, while a lump sum could be very beneficial in paying down debts, for example.

But I do have a lingering concern about those that were properly disenfranchised in the first instance when they bought their income. As many as 100,000 savers a year that bought a standard annuity in recent years would have qualified for an enhancement.

A good number of these bought their annuity from their existing provider; many would have been at best ill-informed of their options.

For these savers, offering them the supposed lifeline of an exit through a secondary market actually means compounding the lesser pension income they have bought with an additional 20 per cent drop to the assumed eventual payout.

I have written before about the informal review the Financial Conduct Authority demanded of a number of post-2008 annuity sales by life companies, which could result in a broader demand for redress for past transactions - and especially those in a grey area short of flagrant ‘mis-selling’.

According to an article in the Daily Telegraph on Saturday, the regulator is preparing to order a major redress scheme on the back of this work which could lead to compensation for some 600,000 past annuitants - around 100,000 a year for around six years. Payouts could be up to £50,000.

It is worth highlighting before going on that this is just one report, in one newspaper which has been campaigning on this issue.

In fact, the FCA outright denied it had found “evidence of widespread mis-selling” or was planning an “industry-wide redress scheme” in its on the record comment.

Of course, there has always been wiggle room here. What is the definition of ‘widespread’, or ‘industry-wide’? Maybe any compensation schemes will be more targeted and apply to tens rather than hundreds of thousands.

This is all conjecture. More certain is my belief that there are many thousands of trapped savers who have not been treated fairly and for whom a secondary annuity market, however laudable, is not an adequate solution.

Either way, beyond Budget headline-grabbing, the legacy annuities story still has a long way to go.

ashley.wassall@ft.com