18th March 2015
More than five million people with annuities will be able to cash them in or reinvest them from April 2016 under plans confirmed in the Budget.
The Government plans to lift what until now has been a punitive tax regime for anyone seeking to cash in an annuity which charged 55 per cent.
The change will allow those who have already bought an annuity contract to access the Freedom and Choice pension reforms albeit a year later. The change comes into effect next month for other investors and savers over the age of 55.
The Government will publish a consultation on how to establish the market for buying and selling annuities and will work with the Financial Conduct Authority to introduce appropriate guidance and other consumer protections.
This may include extending the Government-backed Pension Wise service to support annuity holders.
Under the plans, selling an annuity will not technically unwind the contract. Instead, the annuity provider would continue to pay the annuity payments for the lifetime of the annuity holder, but would reassign those payments to another third party purchaser.
Pensioners will not be able to sell their annuity back to their original provider nor allow the original annuity provider to purchase, and then discontinue annuity payments.
The Treasury will consult on what type of company or entity will be able to purchase the annuity. A second hand annuity contract will not deemed a suitable investment for retail investors.
In his Budget speech, Chancellor George Osborne said: “There are five million pensioners who are locked into annuities they have already bought. They should have the same freedoms as we have given everyone else. For most people, sticking with that 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 – the same freedom we are offering those approaching retirement in April this year.”
The pension industry remains concerned about how the reforms will work in practice while acknowledging the change will be welcome among investors.