Cashing in unwanted annuities

Many people purchased these products because they had no other choice, whereas in future defined contribution pension savers will be allowed to decide what is best for their own retirement circumstances.

It is true that many people received very poor value and paid high charges when they bought their annuities, and of course they are at risk of receiving poor value when selling them, but that is not a reason to deny them the option. 

To reduce the problem in future, I would urge any trustees who are still forcing members to annuitise DC pots because scheme rules require it, to consider whether this is really in their members’ interest and look into changing the rules if possible.

Annuities provide insurance against living a long time and protect against falling interest rates or poor markets. 

They can suit people as long as they buy the right type at the right time, and not necessarily with their entire fund. 

People need insurance against many more risks they will face during retirement, which the standard annuities bought by most annuitants do not cater for. 

I would urge any trustees who are still forcing members to annuitise DC pots because scheme rules require it, to consider whether this is really in their members’ interest and look into changing the rules if possible

For example, standard annuities do not protect against dying young or getting ill, do not cover a partner, have no inflation-linking and will not allow customers to benefit if rates rise, if investment markets are strong or if better products are developed in future. 

Having the option to change their existing annuity would give people the chance to insure themselves against some of these other risks.

There are circumstances in which people could certainly benefit from cashing in their annuity. For example:

• Those who knew they did not want to buy an annuity but had no other option;

• Those with plenty of other pension income (perhaps having had to annuitise a small additional voluntary contribution);

• Those who bought the wrong type of annuity, especially recently, and have had little payout so far;

• Those with large debts and small level annuity income that is of little use, while the cash lump sum could help clear debt;

• Those who are afraid of becoming ill, and want some peace of mind that their pension savings could be better used;

• Those who want to be sure their pension money passes to their loved ones, not an insurer when they pass away;

• Those who want to put their money back into a pension for the future;

• Those who had a guaranteed annuity rate which does not cover a partner.

So many individuals have written to me hoping to be able to undo the unwanted annuity they are stuck with, which is not suitable for their needs. 

I believe it is only fair to give them the option to make their money work better for their retirement requirements. 

Ros Altmann is the government's older workers champion and independent pensions expert