Annuities Selling an annuity
If you have an annuity but want to cash it in, you'll be allowed to do this after rules change in 2017.
Tax measures being introduced on 6 April, 2017, will give people with an annuity the same flexibility as new retirees (who've been able to take their retirement savings as cash since the introduction of the pension freedoms in April 2015).
Many questions remain about how this will work in practice.
Here, we explain everything we know about annuity cash-ins so far.
Who can sell their annuity?
Both existing annuitants and those buying an annuity in the future will have the option to sell it back, which will bring this retirement option into line with other pension products.
The government has confirmed that people will need to get 'appropriate financial advice' if cashing in 'higher value' annuities, although it's not yet clear what level will constitute 'higher value'.
Can I cash in my annuity now?
It is possible, in some circumstances, to cash in your annuity now. However, you’ll face tax charges between 55% and 70%, making the prospect effectively useless.
From 6 April, 2017, these charges will be removed so you'll be taxed only at your normal income tax rate.
Who can I sell my annuity to?
It's not yet clear how the secondary annuity market will work and which companies will buy them.
Annuity providers will not be able to buy back their own products, as the government is concerned this would stop people shopping around for the best deal.
How much of my original investment will I get back?
As with the rate you're offered when buying an annuity, your re-sale amount is likely to depend on many factors, including your personal health.
It remains unclear whether there's a risk of fees devouring the annuity's cash value.
Pensions provider Fidelity has suggested the costs of the sale could eat up around 40% of whatever initial payout the annuity holder received - hardly a tempting deal.
Where can I get advice?
A well-qualified financial adviser will help you work through the implications of the decision. The government's free Pension Wise service may also be expanded to assist with this decision.
Should I cash in my annuity?
It's too early to get into the details of any potential sale; the new tax measures don’t come into effect until April 2017 and it's yet to be confirmed exactly how the market will work.
However, it appears that, for most people, selling an annuity won't be the best decision.
We recommend seeking advice, regardless of whether it's compulsory, before acting. Ensure your decision is made as part of a wider financial plan and not just an impulse for a shopping spree or lavish holiday.
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- Watch our short video explaining how the pension freedoms affect you
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