Sell Your Pension for Cash
January 6th, 2015
The Telegraph has recently published an article about the possibilty of selling your pension for cash. We’ve highlighted some interesting parts below – to see the full article please click here.
“Millions of retired workers would be given the power sell their pensions, under major plans to relax annuity rules being drawn up by ministers.
Up to five million pensioners would stand to benefit from the proposals, if they would rather have money in their bank accounts than a guaranteed income every year.
Reforms announced in last year’s Budget will mean working people who retire in future will be able to cash-in their pension savings for a lump sum which they will be free to spend as they wish.”
The article goes on to say:
“An estimated 400,000 people who retire each year use the money they have saved while working to buy an annuity – an insurance product which pays an annual income for the rest of their lives.
For many people, it is the biggest financial decision they will ever make. However, in recent years annuity rates have plunged, trapping many pensioners in poor-value schemes that have destroyed the value of their lifetime savings.
The annuities market has also been criticised for exploiting people’s confusion about the complicated arrangements by hitting customers with “shocking” annual fees, and putting people off “shopping around” for the best deal when they retire.
The problem has become particularly acute after the demise of final-salary pensions in the private sector, which do not require people to buy annuities.
Mr Webb’s plan follows the most radical pension reforms in decades. Under measures announced in last year’s Budget, workers will be given the power to take their lifetime savings in cash when they retire, instead of being forced to buy an annuity, from April this year.
However, millions who have already bought annuities will miss out. In some cases, they will have bought their annuities relatively recently and most will have done so because they had no choice.”
Steve Webb, the Pensions Minister, goes on to say:
“The Budget freedoms for people who have yet to use their pension pot have been widely welcomed.
“But the millions of people who have already been forced to buy an annuity are so far missing out on these new freedoms and many feel aggrieved.
“I have heard from people around the country who would like to enjoy similar freedoms to the freedoms set to be enjoyed by those who have yet to crystallise their pension savings.
“As things stand, once an annuity is in payment there is very little that an individual can do if they would prefer instead to have a cash lump sum or some combination of cash and reduced income.
“But, given that we now accept that individuals should be given more control over their retirement savings, I would be concerned if we were to exclude up to five million people who are currently receiving annuity income.”
According to latest figures from the pensions industry, there are about six million pension annuities currently being paid, worth about £11 billion each year.
As some pensioners will have more than one policy, the Department for Work and Pensions estimates that this means up to five million people are now receiving pension payments through annuity schemes in retirement.