Minister calls for pensions freedoms to be extended to purchasers of annuities

Steve Webb, the minister for pensions, has once again called for pensioners who purchased annuities to be given an escape route out of their plan and be allowed to take advantage of the new pension's freedoms.

The Chancellor of the Exchequer, George Osborne, announced in his 2014 budget wide ranging changes on how people can access money paid into a defined contribution, which come into effect in April 2015.

Anyone who has already purchased an annuity cannot break their contract and will be trapped in the old system.

Speaking to the Sunday Times, Webb asked, "Why shouldn't you be able to cash for it?"

"The more you think about it, the better the idea gets. Essentially, it would be permissive. If people were offered a cash amount for their annuity that was not very attractive, then they don't do it. Or, without overcomplicating it, perhaps they could sell half their annuity.

"To be honest, it is hard to see why anybody would really object," he added.

However the Treasury has already previously dismissed Webb's idea of 'unwinding annuities', saying it cannot simply rip up existing contracts.

Treasury financial secretary, David Gauke said: "It is very difficult to address that problem, because a contract has been entered into. Of course, one can understand and sympathise with people's frustration, but one has to draw a point in time where the flexibility comes into place.

"Inevitably, if you draw a point in time there will be those who fall just before that point. It is extremely difficult to try to unravel contracts that have been entered into.

"There is an inherent difficulty; a consequence of providing flexibility is that there will always be a cut-off point. One could extend it and go further back, but is then left with someone else who has entered into a contract immediately before that cut-off point."

Further confusion

Responding to Webb's comments, the Association of British Insurers said that at a time so close to a general election, it is normal for politicians to voice their policy ideas, but warned that with so many changes already taking place, it could just further confuse people.

"Given the current stage in the electoral cycle, it is usual for politicians to publicly voice individual policy ideas. However, putting forward the idea of unwinding existing annuities creates further uncertainty at a time when the market is already undergoing enormous change."

Binyamin Ali is assistant editor of Private Client Adviser