Government right to shelve annuity sales, says industry
The Treasury's decision to abandon plans to let pensioners raise money by selling their annuities has been welcomed by the pensions industry.
The controversial idea was first aired in March 2015 by the then Chancellor George Osborne as part of his plan for "pension freedoms".
Despite deciding last December that the plan would go ahead next April, the government has now changed its mind.
The Association of British Insurers (ABI) said it was the "right decision".
The government admitted that too many pensioners might be lured into selling their annuities - an income for life - in exchange for a lump sum.
Acknowledging that most people would be best advised to stick with their current annuities, the Economic Secretary to the Treasury, Simon Kirby, said: "Allowing consumers to sell on their annuity income was always dependent on balancing the creation of an effective market with making sure consumers are properly protected.
"It has become clear that we cannot guarantee consumers will get good value for money in a market that is likely to be small and limited."
But the former pensions minister Ros Altmann said it was a missed opportunity.
Speaking to the BBC, she said: "It will be disappointing to tens of thousands of people who bought an annuity they didn't want, and didn't need."
Steve Webb, the pensions minister at the time of the so-called pension freedoms, said the issue had not been handled well by the government.
"There did need to be a lot of potential buyers for this market to work," he told the BBC.
"If you've got an annuity to sell, it's very hard to work out what it's worth if you're a member of the public."
Industry experts welcomed the move. Tom McPhail, of Hargreaves Lansdown, one of the UK's biggest annuity brokers, said the government's decision was right.
"After extensive research, at the beginning of September [we] announced that we would not be participating in the secondary annuity market."
"The risks to the vast majority of annuity holders outweigh the benefits for the small minority who could benefit," he pointed out.
The ABI agreed that the government was right to abandon the plan.
"The industry has consistently supported the freedom and choice reforms, but we agree with the government that the secondary annuity market came with considerable risks for customers, including from unregulated buyers," said Rob Yuille, the ABI's head of retirement policy.
The government's plan was controversial from the start.
Critics pointed out that anyone among the estimated five million people with annuities who sold them would almost certainly receive a poor deal.
The passing of time would mean that they would inevitably get poor value, receiving far less than they paid.
Insurance firms willing to buy second-hand annuities, and brokers willing to arrange the deals, would charge for their services, eroding the value of the annuity sale.
Last April, the Financial Conduct Authority underlined these concerns, saying that a new "secondary" market in annuities would mean a "significant risk of poor outcomes for consumers".
The regulator said that annuities were "inherently difficult for consumers to value, and consumers who will be able to participate in this market will include a higher proportion of older, more vulnerable consumers".