Advisers have praised the decision to scrap the secondary annuity market, after months of warning that consumers could have been put at risk.
Mike Gordon, technical director for Rutherford Wilkinson, said the firm had always believed this to be a vote-winner for the former chancellor George Osborne and an "accident waiting to happen" for customers.
Mr Gordon said: "I always thought that this was an accident waiting to happen, and it is best for the plans to be scrapped. The only surprise is that it has taken them so long to realise that the practical difficulties outweigh the potential advantages.
"Hopefully the government will learn that it might be better to think about the practicalities before they announce such policies to the public, and distract people for 18 months.
"However, as long as we have politicians focused on general elections we will continue to have unworkable ideas coming out, wasting everybody’s time."
The secondary annuity market has failed before it even started. This is not such a bad thing. Andrew PennieOn Tuesday afternoon (18 October), HM Treasury issued a statement saying the secondary annuity market plans were being shelved as there were too many concerns over consumer protection.
In the statement, Simon Kirby, economic secretary to the Treasury, said the government had pulled its plans because the "consumer protections required could undermine the market's development".
He said: "It has become clear we cannot guarantee consumers will get good value for money in a market that is likely to be small and limited.
"Pursuing this policy in these circumstances would put consumers at risk – this is something that I am not prepared to do."
PensionHelp's pension adviser Terry Mullender commented on FTAdviser's breaking story: "Common sense has prevailed. This market would have been fraught with difficulties for both consumers and advisers."
Gary Smith, associate director at Tilney Financial Planning, also hailed the decision, commenting: “For once in a long time it seems, common sense has prevailed.
"Rather than continuing to blindly follow an ill-fated policy for fear of acknowledging defeat (and the subsequent reprisal), the Prime Minister and her chancellor have used the recent shake-up in the cabinet as a get-out-of-jail-free card.
"While I understand the frustrations of those who planned to get their hands on their rolled up annuity income, it would never have been as good as they had envisioned.
"It was guaranteed that discontented pensioners would have been left with no income and much less cash than they’d hoped."
According to David Penney, chartered financial planner for Penney, Ruddy and Winter, there are three separate issues with the secondary annuity market.
He outlined these as:
1. Consumer risk. He said: "Taking the market as a whole, allowing pensioners to sell their annuity would benefit a small proportion of people, but will result in poor outcomes for a far greater number. It is also open to consumers being exploited."
2. Lack of a market. According to Mr Penney: "This proposal has been mothballed due to the lack of interest from annuity providers."
3. Practical issues. He commented: "It is impossible to create a system that is cost effective and transparent, and that the consumer will understand. How do they value their pension income?"
Mr Penney added: "In principle, I can see some merit in giving an annuitant the ability to cash in their annuity with their existing provider, such as due to triviality. But this wasn't the proposal."
Andrew Pennie, head of pathways for Intelligent Pensions, said: "The secondary annuity market has failed before it even started. This is not such a bad thing and while a small number may well have been looking forward to the opportunity of selling their annuity, overall it’s probably an unnecessary distraction avoided.
“The main reason behind this decision is the risk of poor consumer outcomes; people most vulnerable and in need of ongoing income attracted by the lure of immediate cash. It was always a challenge to see how value could be achieved for an annuity seller in a market that was going to incur costs of underwriting, general administration and in all likelihood, regulated advice."
However, not all advisers were pleased to see the news. David Harrison, managing partner of True Potential, said: "This will be disappointing to thousands of people who were forced to buy an annuity, particularly at historically low rates, and now regret it.
"They are effectively locked out of the freedoms that others can enjoy. Provided that consumers were advised properly, this could have worked and a competitive market would have developed."
Mr Harrison added: "The government clearly has concerns so it’s right to shelve the proposal for now but I welcome the ongoing commitment to pensions freedoms.”
His comments echoed those made by former pensions minister Baroness Ros Altmann, who commented: "Those who bought an annuity because they were forced to do so, but would not have purchased one unless the law required it, have been waiting desperately for an opportunity to sell it but that opportunity is now being taken away from them."
