While financial services professionals have broadly welcomed the scrapping of the proposed secondary annuity market, some see it as an example of the government's inability to consider fully the practicalities of policy.
Dentons Pensions director of technical services Martin Tilley (pictured) said: "This was a 'think bubble' that should have been popped before it got to public consumption."
His comments follow the government's announcement yesterday that the proposed launch of a secondary annuities market would no longer happen. In a statement it said: "It has become clear that creating the conditions to allow a competitive market to emerge could not be balanced with sufficient consumer protections."
Tilley suggested the proposals may have created false expectations among consumers, who could have decided to hold off on annuities decisions as a result.
He added this may have also wasted providers a lot of time, resource and potentially money, in preparing for a policy that never came to fruition. Equally, he said, some providers and platforms could have seen their hopes of becoming key players within what was expected to be a relatively small market dashed.
For his part, Dobson and Hodge financial services director Paul Stocks said: "It's been misleading, as people have possibly got excited about something they can't capitalise on.
"There were a lot of things in the market that were working against someone with an annuity. The transaction costs, which are relatively unknown, and the cost of buying the annuity, including advice - when you factor all this in, people hypothetically could have been very disappointed with the outcome."
Tilley said the situation overall highlighted a misunderstanding of what the consumer wants and the current capabilities of the industry to deal with yet more complexity in pensions policy.
He referred to recent examples at both the Conservative and Labour party conferences where MPs offered suggestions of potential pensions policy but then admitted they had no idea how to implement it. "If it's not practical don't throw it out there," Tilley added.
Plutus Wealth Management financial planner Sebastian Hurst agreed the industry needed to be left to settle with changes, such as the pension freedoms, that are still being implemented.
He continued: "Just leave the industry well alone. On the accumulation side of things, with tax relief, the government needs to stop tinkering with it, as it's made the market more complicated."
Tilley argued the idea for a secondary annuities market should have been brought to a closed industry forum first, as it would have allowed the industry to raise concerns before going to the consumer and then having to backtrack on plans publicly.
In consequence, he added, this has "tarnished the pensions industry - particularly at a time when it is trying to do more to engage consumers with pensions".
Tilley also felt the constant proposals of policy change from the government were creating a situation where advisers were not able fully to guarantee a plan for the foreseeable future. He referred to recent Retirement Advantage research that highlighted how almost half of all over-50s now prioritise ‘certainty' in pensions over tax relief incentives.
For his part, Hurst said: "This is all leading to increasing consumer mistrust for the pensions industry. It was an announcement that was ill-conceived and not fully thought through and not consulted on properly with the industry professionals."
Lamb and Associates partner Bill Marshall said: "It would be better to focus on the annuities that have already been mis-sold to consumers.
"It is important to address the amount of annuities that were provided without any advice from the feeding company and with a poor standard of documentation, where consumers would have probably got better deals on the open market."
'Compelling third choice'
Just Retirement group communications director Stephen Lowe offered an alternative view, however, pointing to more than one million savers he said were "lucky enough" to have pensions that offer a guaranteed annuity rate (GAR).
He continued: "These offer a guaranteed income for life at rates that were typically at 9% to 12% but some offer even more. Yet however attractive they may seem, FCA pension freedom figures show fewer than one in three people take up the GAR.
"Tens of thousands of people each year, faced with either flexible access to their pension money or the promise of a generous return, were choosing to take the money.
"The secondary annuity market would have given them a compelling third choice that better reflected the fair value tied up in the annuity offer. They could have accepted the higher guaranteed annuity rate and then sold the income stream to the highest bidder. Yes, there would be transaction costs, but the size of the gain compared with foregoing the GAR would have made the effort more than worthwhile."
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