For those of you who have read my columns before you'll know I'm a big fan of pension minister Steve Webb, but his latest plan for annuity sales is one I just can't get on board with.
Webb, our longest serving pensions minister, knows his stuff and has implemented radical changes that will benefit the country for decades to come. However, he seems to have been gripped by election fever as he has launched a consultation on allowing pensioners to sell their annuities for a cash lump sum.
The aim is offer a concession to the already retired who are jealously looking over at the new pension freedoms coming into place in April.
Instantly calculate your pension income options
While unwinding your pension may sound like a great idea, the realities of doing it are less simple and could see consumers lose out. The first stumbling block is in calculating just how much an annuity is worth now, not just the amount of income that has been taken but recalculating how long the insurance company thinks you are going to live for.
For those who are unhealthy this means they won't get very much for their annuity while the healthiest will benefit but they are the least likely to give up a guaranteed income stream.
The second point is that it may be a really bad idea to sell you pension and if it is who is going to stop you from doing it? People make bad decisions all the time and if you have a reasonable income from your pension then it's probably a very bad idea (as a generalisation) to give it up.
The third problem is that annuity sales could open a door to a whole wave of scams where 'annuity liberation' companies offer to buy your annuity from you at a paltry rate. It's a scandal waiting to happen.
Sort out the system
In reality what we need is to sort out the terrible annuity market as it stands today. It needs to be more open, more transparent on costs, and more innovative to ensure that people get the best value for their money.
It may sounds harsh but for those who have already retired it's a case of tough luck. Legislation changes and if you miss out then it's too bad – I would like to see mortgage interest relief brought back but it's not going to happen!
We, and Webb, have to be realistic about what can be achieved starting today.
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