UK Chancellor George Osborne has presented his Budget to Parliament and proposed that from April 2016, people who already have an annuity will be able to now effectively sell it on.
Currently, people who have bought an annuity are unable to sell it without having to pay at least 55% tax on it.
However, from April 2016, the UK Chancellor has proposed that the tax rules will change so that people who already have income from an annuity can sell that when they choose, and will pay their usual rate of tax they pay on income, instead of 55%.
The UK government is also proposing to work with the Financial Conduct Authority (FCA) to ensure appropriate consumer protection is in place for annuity holders as they consider their options.
In its consultation document, the UK government said: "The government thereby intends to create the conditions for a secondary market in annuities to develop, in which third parties – which could include asset managers, pension funds, insurers and intermediaries – are assigned the rights to annuity holders’ income streams in return for a lump sum."
Commenting on the UK Treasury’s proposal to allow retirees who have purchased an annuity to sell it to a third party, Tony Stenning, head of UK Retail at BlackRock, said: "We welcome the consultation announced by George Osborne to allow those in retirement to sell their future annuity instalments to a third party in return for a lump sum.
"However, caution must prevail. We need to ensure this is workable and retirees are adequately protected. There is no doubt that some in retirement feel that they have missed out on the flexibility Pensions Freedom introduces on 6 April. However, selling an existing annuity may not be the right decision for all, particularly for those looking for a guaranteed income."
LV=’s managing director of retirement solutions, John Perks, said LV= is also supportive of the Chancellor’s Budget proposal , although he warned it will not be" an easy thing to do".
Perks said: "Cashing in and spending an already poor value annuity will only worsen an existing problem. Likewise cashing in a good value annuity could also cause customer detriment. However, as part of the pension freedoms, it makes sense that all retirees should have the opportunity to achieve a better income outcome."
Malcolm McLean, senior consultant, at UK actuarial and consultancy services provider, Barnett Waddingham, said:" I’ve got a feeling that although there will undoubtedly be some people who could benefit from exchanging their annuity for cash, the likely poor deals on offer and the complexity involved may make this new extension of the freedoms unsuitable for the majority of existing annuitants."
This Chancellor’s consultation document is available at www.gov.uk/government/publications. Responses to the consultation should be received by 18 June 2015.
The 2015 Budget announcement comes after reforms in the 2014 UK Budget – which becomes effective in April 2015 – mean that from April 2015 individuals aged 55 and over will no longer need to buy an annuity. They will be able to access their defined contribution pension savings as they wish, subject to their marginal rate of income tax.