Steve Webb wants changes to pension policy announced in the 2014 budget to extend to existing pensioners, promoting financial freedom and allowing retirees more control over their money.
In his 2014 budget, George Osborne announced reform to the current pension system, giving retired workers the option to receive their pension as a lump sum, rather than in annuity, as is currently required. This marks a significant overhaul in pension policy, offering more financial freedom to retirees.
However, these changes only apply to works who retire after April 2015, when the changes come into force, leaving an estimated 5 million pensioners without the option, locked into annuity policies until they die. This is particularly problematic since annuity rates have been steadily dropping recently, leaving many pensioners trapped in annuity schemes that are steadily devaluing their life savings.
Lib Dem pensions minister Steve Webb has proposed an extension to Osborneís reforms to include those already retired, allowing them to sell off their annuity policies for cash to the highest bidder. Webb said: “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.î He added: ìÖgiven 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.î
The general thrust behind Webbís proposal is his desire to ìsee people trusted with their own money wherever possible.î He believes firmly that it should not be up to the government how a retiree spends their pension money and that if they want to cash it in and buy a sports car, for example, then so be it. He has come under some fire from those who claim that it is a dangerous move that could promote financial irresponsibility, but retorted that those who have saved up enough throughout their lives in a pensions fund have, in doing so, already demonstrated that they are financially responsible enough.
Webbís proposal would be particularly preferable for those who have built up multiple pensions from multiple employers, giving them the ability to maintain the security of an annuity, while cashing in their other pensions for a lump sum.
If a pensioner sells their annuity, the policy would still pay out until their death, as usual, only it would be paid out to an insurance company or pension fund, or whoever bought it. Protective measures would have to be put in place in order to prevent elderly retirees from being extorted but, given the ever increasing life expectancy of the average citizen and thus the guaranteed income that comes with purchasing an annuity, it is in the interest of the buyer to offer a fair price to the retired worker.
Webb hopes to publish a detailed plan for his proposed reforms before the general election in May, and has already garnered ìconsiderable interest and enthusiasmî from major players in the industry and claims he has ìalready heard from people around the country who would like to see this change made.î His next step is to gain cross-party support from Labour so that, whoever comes out on top in the elections, these plans will be seen through.