Millions free to sell their annuity from next April
Written on 15 December 2015
Annuities will no longer be for life under new plans announced by the Treasury today. As part of its plans to give people greater freedom over what they can do with their personal pension pots, the Government has said it will create a secondary annuity market in April 2017.
In the past, most people with a personal pension had to use this pot of money to buy an annuity (an income for life) when they retired. Once you had bought an annuity you were pretty much tied into this for life – you couldn’t sell your annuity or get your money back without incurring a large tax bill.
New pension rules introduced in April this year gave people more choice over what they could do with their pension pots. But there are still more than five million people who are locked into annuities bought before this. Currently, if you want to sell your annuity you need to find a willing buyer and then pay between 55% and 70% tax on the proceeds.
The new secondary annuity market will allow people to sell their annuities for a cash lump sum which they can then do what they like with. The amount of tax they have to pay on the proceeds will be their marginal rate of tax and there will be free guidance to help them decide what to do.
Harriet Baldwin, Economic Secretary to the Treasury, says the new market is designed to give people more choice in line with the April pension freedoms.
“For most people, sticking with an annuity is the right thing to do. But there will be some who would welcome being able to draw on that money as they choose.
“People who’ve worked hard and saved hard all their lives should be trusted to make the right decision for them and with the help of the regulator we will ensure these people have the right information to do that,” she said.
How the secondary annuity market will work
Anyone who has a pension annuity in their own name will be eligible to sell it. This includes joint annuities and annuities with a guaranteed rate.
All UK-based annuity purchasers and intermediaries will be regulated by the Financial Conduct Authority (FCA). The Treasury will also allow annuity providers the choice to buy back an annuity they’ve sold, subject to certain rules.
Measures will also be introduced to protect consumers and ensure they make informed decisions about their savings. These measures include:
- extending the free Pension Wise guidance service to help consumers decide on what’s best for them
- requiring individuals to seek independent financial advice for annuities worth above a certain amount
- asking the FCA to look at a range of extra consumer protections, such as risk warnings and ways for consumers to understand the fair value of their annuities.
You can find out more about annuities, your pension pot options and the State Pension in our Money Matters guides.