Economic Secretary to the Treasury Harriett Baldwin, recently announced that more than five million people will be able to sell their annuity from 6th April 2017.
In the government’s response to the recent consultation into the introduction of a secondary annuity market published today, the government confirmed that from 6th April 2017 tax restrictions for people looking to sell their annuity will be removed, giving five million people with an existing annuity, and anyone who purchases an annuity in the future, the freedom to sell their right to future income streams for an upfront cash sum. Currently people wanting to sell their annuity income to a willing buyer face a 55% tax charge, or up to 70% in some cases. The government will remove this charge, so people are taxed only at their marginal rate.
The government intends to allow annuities owned by an individual and held in their own name (rather than by a pension scheme) to be sold. The government has confirmed today that this includes joint annuities and annuities with a guaranteed rate. Existing annuities and annuities purchased in the future will all be in scope.
These changes will give people the freedom to use that capital as they want – just as those who reach retirement with a pension pot can do under the pension freedoms introduced in April. Under the new changes retirees will be able to take the annuity as a lump sum, or place it into drawdown to use the proceeds more gradually.
The government has also responded to consultation feedback and will work with the industry and the FCA to create a simple online tool to help consumers work out an estimated value of their annuity.
The government will continue to work with the FCA as they develop appropriate steps to regulate the market. The FCA will consult in 2016 on their proposed rules around the secondary annuities market.
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Before making any decisions, it will be important to take Independent Financial Advice to discuss your options and to find the best solution for your individual circumstances.
Caution is required, since annuities do offer guarantees and giving up these rights could mean that the longer term benefits are less than you could have received from the annuity.
