Following a consultation, the Government has announced that the UK’s five million annuity holders, as well as anyone who purchases an annuity in the future, will be able to sell the product with effect from April 6 2017.
When the Government unveiled its recent set of pension freedoms, allowing new pensioners to withdraw as much or as little of their fund in cash as they wished, the many consumers who had already purchased annuities were unable to benefit in this way – they were still compelled to continue to receive whatever income the annuity provided throughout their retirement.
From the implementation date, annuity holders will now be able to either sell their annuity in exchange for a lump sum, or else place the value of the annuity into a drawdown plan where they can make partial withdrawals as and when required. Those doing so will only be taxed at their marginal income tax rate. It is anticipated that it will be the annuity providers who will be ‘buying back’ the annuities sold by policyholders.
The free Pension Wise guidance service, operated by Citizens Advice and The Pensions Advisory Service, will be extended to offer assistance to those already drawing retirement income via an annuity.
The regulatory environment will also alter in a number of ways as a result of the changes. All firms purchasing annuities and all intermediary firms active in this market will need to be authorised by the Financial Conduct Authority (FCA). As with existing pension switches, there will also be a requirement to receive regulated financial advice when a consumer is considering selling an annuity worth more than a certain amount – the exact level is yet to be determined. Selling an annuity is unlikely to be best advice for the majority of people.
Finally, the FCA will be required to consider what additional consumer protection measures will be required as a result of the changes, for example there may be a requirement for firms to explain the risks of cashing in an annuity.
It has already been decided that the industry will work with the FCA to create an online calculation tool that consumers can use to determine the value of their annuity.
However, pensioners whose annuities are technically held by a trustee, or those whose annuity provider refuses to participate in the scheme, may be excluded from enjoying these freedoms.
The Economic Secretary to the Treasury, Harriett Baldwin MP said:
“For most people, sticking with an 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 gave people approaching retirement in April this year.
“That’s why I’m delighted that we’re extending our landmark pension freedoms to over five million people with annuities from April 2017.
“People who’ve worked hard and saved hard all their lives should be trusted to make the right decision for them and with the help of the regulator we will ensure these people have the right information to do that.”
The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article.