Ten things to think about before you sell your annuity

19th May 2016

Steven Cameron, pensions director at pension firm Aegon has suggested 10 things you should think about before selling on your annuity

He says: “From next April, as a result of government changes, some people will be able to sell on their annuities. An annuity gives you a guaranteed income for life. When you bought your annuity you may have purchased annual increases and for income to continue to be paid to your partner should you die before them.

“The new ‘secondary annuity market’ will give many individuals the option of assigning or ‘selling’ future annuity instalments to a third party buyer in return for a cash lump sum or a transfer into a ‘flexible drawdown’ policy from which they can take income as and when they need it.

“The Government itself admits that for most people, keeping an annuity which is providing a guaranteed income for life will be the right decision. And the financial regulator, the FCA, has highlighted there are many risks that consumers might lose out. As many people with annuities are elderly the regulator wants to make sure any vulnerable individuals are protected.”

Top 10 considerations for annuitants

  1. Are you eligible? Check with your pension provider whether you have an annuity that they will allow you to sell. Not all will offer you this choice.
  2. Is your annuity legally in your name? You may find it was purchased by trustees of a previous pension scheme. If you’re not sure, check as you’ll need to ask the trustees to change it into your name before you can consider selling it.
  3. What would you live on if you sold your annuity? Make sure that you have steady additional income on top of the State pension.
  4. Is your annuity set up to continue to your spouse or dependent if you die before them? If so, what will they live on if you’re not around? You should discuss this with them and you’ll need their permission before you can sell.
  5. If you sell your annuity for a lump sum, you’ll pay income tax, potentially pushing you into a higher income tax rate band. A large lump sum could make you a higher or additional tax payer meaning you could lose up to 45% to the taxman.
  6. Would you like to take your income more flexibly? If so, instead of cashing in your annuity, you could sell it in return for transfer into a flexible drawdown plan. You can then take an income when you wish and only pay income tax on the amount you take out, often incurring your tax bill.
  7. How is your health? You’ll be required to provide medical evidence as anyone buying your annuity will need to estimate how long you’re likely to live as they’ll stop receiving annuity instalments when you die. So if you’re in poor health or have a condition that shortens your life expectancy, the amount you’re offered will be reduced to reflect this.
  8. Ask about the costs involved in selling you annuity. You will be asked to cover administration costs and pay for providing medical evidence.
  9. Getting advice will give you the best deal. The government will require those with substantial annuities to seek and pay for advice before they can sell. If you are selling without advice, make sure you shop around as different buyers may offer very different amounts.
  10. You won’t get back the amount you originally paid, less instalments received. The amount you’ll be offered on selling will reflect a number of factors including current interest rates, your age, health and life expectancy.

Leave a Reply

Your email address will not be published. Required fields are marked *