Radical pension shake-up in the UK gets shelved by government

The U.K. government has abandoned plans to create a secondary annuities market after deciding it would be unable to balance the functioning of a competitive market with the provision of sufficient consumer protections.

In a note published by the U.K. Treasury late Tuesday, Economic Secretary Simon Kirby said, "It has become clear that we cannot guarantee consumers will get good value for money in a market that is likely to be small and limited."

"Pursuing this policy in these circumstances would put consumers at risk – this is something that I am not prepared to do," he added.

The government claimed that many firms had demonstrated a willingness to allow customers to sell their annuities for cash lump sums,although newspapers including the Financial Times had reported instances in recent months of some key pension funds refusing to participate.

In a note to clients on Tuesday, Tom McPhail, head of retirement policy at Hargreaves Lansdown said, "This will no doubt come as a disappointment to some annuity holders who were looking forward to restructuring their retirement income, however it is the right decision. After extensive research, at the beginning of September Hargreaves Lansdown, the U.K.'s largest annuity broker announced that it would not be participating in the secondary annuity market."

"The risks to the vast majority of annuity holders outweigh the benefits for the small minority who could benefit," he concluded.

According to the government, the plan was shelved as it believed a lack of interest from customers would have forced it to undertake steps to stimulate a competitive market in such a way that consumer protections would have been undermined.

The government stressed it had always maintained that keeping annuity incomes would be the best option for most people and estimated only around 5 percent of existing annuity holders would have capitalized on this reform even if it had gone ahead.

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