Annuity Sale U Turn

Annuity Sale U Turn.

The Government has confirmed that it will not press ahead with introducing the ability for you to sell your pension annuity back to your existing pension company or to an external pension company.

Whilst there were concerns that consumers would then receive taxable lump sums and spend it, former Chancellor George Osborne wanted to introduce even greater flexibility.

The government also cited pension companies being unwilling to buy back annuities.

Comment

We suggest all of the above is a smoke screen.  The guaranteed income that is an annuity, is usually backed by Government Gilts.  In simple terms, when you give you pension fund to a pension annuity company, they then go and lend that money to Government by buying gilts.  This then gives the pension company a guaranteed income to have confidence in offering consumers a guaranteed income for life.

By allowing consumers to sell back annuities, pension companies would “cash in” their gilts/reduce future demand for gilts i.e. it is the Government that would then struggle to borrow money from one of its primary borrowing sources and would have to increase interest rates on gilts i.e. it would cost them more.

Is this the real reason why the government has made a U-turn on selling back annuities?