While some may welcome Chancellor of the Exchequer George Osborne's decision to permit them to sell their annuities, investment platform provider AJ Bell believes there is likely to be more downside risk than upside gain on offer to the majority of savers.
“While pension holders may be unhappy with the returns currently offered by annuities there has to be a big risk they will get a poor deal if they decide to take their money and run, for two reasons,” says Andy Bell, chief executive of AJ Bell. “First, the cash lump sums offered may not be good value once the buyer of the annuity prices in the risks involved and their need to make a profit. Second, the extra freedom increases the danger people are misled by fraudsters and use the money to make unsuitable investments which provide a worse outcome than the annuity. Pension providers' control systems are designed to reduce this danger but once funds are withdrawn this protection is removed.”
Notes for Editors
- Since the March 2014 Budget, the Government has outlined a series of pension reforms which are due to come into force from 6 April 2015.
- The March 2015 Budget built on these changes by implementing proposals permitting the sale of annuities for cash, an idea first floated by Pensions Minister Steve Webb in January.