Annuity sell back: secondary annuity market to launch in 2017

Pension freedoms extended to millions as secondary annuity market given green light.

The Government has announced that millions will soon be able to sell their annuity via a new secondary annuity market, which will launch in April 2017.

An annuity is a product people can buy with their pension savings that will pay a guaranteed income until they die.

There are thought to be around five million annuity holders, receiving a total income of £13.3 billion a year, that could take advantage of this new market.

Harriett Baldwin, Economic Secretary to the Treasury, said the changes will give those left out of the pension freedoms in April the chance to do what they want with their savings.

Extending the freedoms

In the past most pension savers had to buy an annuity with their pension pot.

That changed in April this year, when all pension savers over the age of 55 were given the right to do whatever they liked with their pension funds. However, those that had already bought an annuity weren't eligible.

Now the Government is finally giving the green light to plans which will help all those who missed out on these landmark pension freedoms.

Currently people that want to sell their annuity are hit with a 55% tax charge, rising to a massive 70% in some cases.

From 6 April 2017 the tax restrictions for people wanting to sell their annuity will be lifted, giving existing annuity holders, as well as anyone who buys an annuity in the future, the freedom to sell it for a cash lump sum. Only a person’s marginal tax rate will apply to the sale.

Earn 5% from a current account

How can I sell my annuity?

The Government will work with the pensions industry and the Financial Conduct Authority (FCA) to create a simple online tool to help people work out an estimated value for their annuity.

Pension annuities that belong to an individual and are held in their name (rather than by a pension scheme) will be eligible for the new freedoms, including joint annuities and annuities with a guaranteed rate.

Sellers will be allowed to switch to a drawdown arrangement, but won’t be permitted to sell only part of the annuity.

Annuity providers will be able to buy back an annuity, subject to ‘robust safeguards’ and all UK-based annuity purchasers and intermediaries will be regulated by the FCA.

The change will not undo the contractual agreement between the annuity holder and the annuity provider. Rather the sale will just allow the annuity holder to access the value of their annuity. The annuity provider will continue to pay out pension annuity payments for the lifetime of the policy, but these would be reassigned to the purchaser.

The Government says Pension Wise will be expanded to help give free and impartial guidance for those thinking of using the secondary annuity market.

However, the Government will enforce rules which will require individuals to seek independent financial advice for annuities worth above a certain threshold, which will be decided at a later date.

It will also get the FCA to come up with a framework to protect sellers, including risk warnings and ways to understand the fair value of their annuities. The FCA will consult in 2016 on the proposed rules around the secondary annuities market.

Should you sell your annuity?

The Government says that for the vast majority, selling an annuity won’t be the best decision.

But it concedes there may be instances where people need to do it, like getting a more flexible product or freeing the lump sum for other needs.

Minister for Pensions Baroness Altmann said: “Keeping an annuity will still be the right decision for the majority of people. But some were forced to buy annuities in the past that may not have been suitable for them – and I am delighted that this reform will allow more people greater choice and the opportunity of a more flexible income stream.”


Read these next:

FCA: elderly investors are being exploited

UK pension 'one of the lowest' compared to other countries

Self-employed pensions: millions not saving enough in contributions


Be the first to comment

Do you want to comment on this article? You need to be signed in for this feature

Copyright © All rights reserved.