It was back in March 2015 that then chancellor George Osborne said there was “no reason” to prevent retirees who had already bought an annuity from selling their future income stream for a cash sum.
“No reason” – actually, Mr Osborne there were plenty of reasons and they were obvious to everyone in the industry as soon as you unveiled your plans.
As soon as the former chancellor announced pension freedoms should be extended to those who have already bought an annuity, eyebrows were raised.
Advisers were rightly worried about the ramifications of earning cash from arranging the auctioning off of an annuity they may have recommended to the client in the first place.
This was another financial services scandal – this time one that was created by the government without prior consultation - waiting to happen.
Consumer protection was always going to be the big issue for the secondary annuity market.
The buy side would have to be populated with specialists capable of calculating the risk of such a transaction while sellers would have little understanding of annuity pricing.
Information asymmetry on this scale creates a substantial risk of mis-selling.
The only surprise is the timing of the announcement that the plug is being pulled on the secondary annuity market – just six months before it was finally supposed to start to operate.
Why has it taken the government so long to realise that the practical difficulties of allowing individuals to sell their fixed income for life far outweigh the potential advantages?
Yes, the secondary annuity market sounded like a good idea but when you looked at the detail it was quickly clear this was going to be trouble.
Giving up a guaranteed income for life is a huge decision.
While a small minority of people might have benefitted from being able to cash-in their annuity, this would not have been right for the vast majority.
Should the u-turn be condemned?
No. Once you’ve set out in a particular direction, it is never easy to make u-turn but sometimes it is the right decision to make to get back on track.
Should the way the secondary annuity market was first announced and then the blinkered way the former government continued to push on despite red flags being raised by the industry come under?
Yes. The government needs to learn that it might be better to think about the practicalities before they announce policies to the public.
However, as long as we have politicians focused on general elections with individuals whispering about “vote winners” we will continue to have unworkable ideas coming out that waste everybody’s time and money.
There is no real satisfaction in telling the government “told you so” because providers and intermediaries have now wasted time and money getting ready for a market that will never happen.