Rumours are abounding that tens of thousands of pensioners can cash in their rip-off annuities but a conspiracy between ministers and financial firms is blocking their way.
The secret loophole was discovered by former pensions minister Ros Altmann, but she claims Whitehall mandarins gagged her from making the details public.
The speculation has all the hallmarks of a plot for a novel, but remarkably, is true.
The Treasury has confirmed the provision is written into the Finance Act 2004, but they can only be triggered if the insurance company which sold the annuity agrees.
“There has never been any attempt to conceal this arrangement, which has been available on government websites since 2009,” said a Treasury spokesman.
Companies that will cash in annuities
However, government web sites run into thousands of pages and annuity holders would have to know where to search to uncover the information.
The measure allows consumers who bought annuities worth £10,000 or less to convert them to cash.
The firms who sold the contracts were:
- Aviva – which is ‘unlikely to offer this as customers would get poor value for money’
- Prudential – which says the law does not allow customers to cash in annuities
- Legal & General – which takes the same stance as the Pru
- LV= – which may consider applications from customers who saved with a company pension with them but not direct customers
- Standard Life – has a policy refusing to let customers cash in annuities
The news is better for customers with annuities from Aegon, Phoenix Life, Just Retirement and MGM Advantage, who all allow cashing in, although some conditions may apply.
Canada Life and Met Life declined to comment.
Right to sell kept under wraps
A spokesman for financial firm trade body The Association of British Insurers said: “It is possible for providers to buy back annuities bought with small pots under £10,000 if they decide to offer this option, but the consumer and regulatory risks can make this difficult in practice.”
The loophole has come to light following the government scrapping a secondhand market for annuities allowing consumers to trade them in for cash lump sums.
The official reasons for scrapping the policy were lack of interest from financial firms and doubts consumers would get value for money.
The March 2015 consultation said: “People who have already bought an annuity are still effectively locked in to the old system and do not have the option to exit from these arrangements.”
The document also confirmed buy back by the annuity provider was not under consideration.
No current annuity buy back measures for consumers are mentioned in the paper.