From April 2017, a new ‘second-hand’ market for buying and selling annuities will be available.
Previously, most pension savers had to buy an annuity with their pension pot. That changed in April 2015 when all pension savers over the age of 55 were given the option to do whatever they chose with their pension funds. However, those that had already bought an annuity were not eligible.
Now, the government has announced plans to help those who missed out on pension freedoms.
Individuals that want to sell their annuity at present face a 55 per cent tax charge, rising to 70 per cent in some cases. However, from 6 April 2017, the tax restrictions for people wanting to sell their annuity will be lifted. This will mean that existing annuity holders, as well as anyone who buys an annuity in the future, will have the freedom to sell it for a cash lump sum. An individual’s marginal tax rate will apply to the sale though.
The government will work with the pensions industry and the Financial Conduct Authority (FCA) to create a simple online tool to help individuals to calculate 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 will not 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 government has said that Pension Wise – a free and impartial government service about defined contribution pension options – will be expanded to give guidance for those thinking of using the secondary annuity market. However, rules will be enforced that require individuals to seek independent financial advice for annuities worth above a certain threshold; a figure that will be decided at a later date.