Ros Altmann

George Osborne’s annuity plan explained

George Osborne has today said that he’ll allow people to sell their annuities for cash, and will consult on how best to establish a market for second-hand annuities.  This move will be popular with many of the five million or more who have been forced to buy these annuities in recent years.

Here’s what you need to know.

1. Annuities have become worse value but people still forced to buy as there was no other way for many to take money out of their pension funds.  The rules required anyone who wanted to withdraw some cash from their pension savings to ‘secure an income’ and if they did not have very large amounts in their fund, they had no other option – they had to buy an annuity. When interest rates crashed, so did the annuity payout. This has hit pensioners hard.

2. The richest, with largest pension funds, could avoid annuities:  Those with large funds did not have to annuitise, but the vast majority had no choice.  And, until now, once they had bought the standard type of annuity, they had no chance to change it, they were stuck with it for life.  (Selling the annuity income might have been theoretically possible, but would face a tax charge of between 55% and 70%, so this was not a realistic option).

3. Osborne says he will now consult on second-hand annuity market:  Of course, the Chancellor’s last Budget swept away those old rules, but those who had already bought an annuity seemed stuck.  Not now though.  A consultation will start on 18th March on how best to establish a market for second hand annuities.

Those who were forced to buy an annuity under the old rules but never wanted to have been writing to their MPs to complain about the unfairness of being forced to buy an irreversible product, when they would not need to do so under the new rules. 

Already a subscriber? Log in

Keep reading with a free trial

Subscribe and get your first month of online and app access for free. After that it’s just £1 a week.

There’s no commitment, you can cancel any time.

Or

Unlock more articles

REGISTER

Comments

Don't miss out

Join the conversation with other Spectator readers. Subscribe to leave a comment.

Already a subscriber? Log in