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Pension freedoms risk retirees security, says AJ Bell

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Sipp provider AJ Bell warns that the ability to sell annuities may not benefit the majority of savers.

Sipp provider AJ Bell says new plans from Pensions Minister Steve Webb to allow people to sell their annuities may have more downside risk than upside gain for the majority of savers.

Gareth James, AJ Bell technical resources manager, says: “While pension holders may be unhappy with the returns currently offered by annuities there has to be a big risk they will get a poor deal if they decide to take their money and run, for two reasons.”

“First, the cash lump sums offered may not be good value once the buyer of the annuity prices in the risks involved and their need to make a profit. Second, the extra freedom increases the danger people are misled by fraudsters and use the money to make unsuitable investments which provide a worse outcome than the annuity. Pension providers’ control systems are designed to reduce this danger but once funds are withdrawn this protection is removed.”

James believes that there may also be problems around selection of annuities, with healthy individuals opting to keep their annuity and those in poorer health choosing to cash out. He adds that a first step to test the proposal could be the setting of a cash threshold which permits the sale of lower-value annuities. If this provides more good outcomes than bad for savers then the option to sell could be made available to all annuity holders.

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