Five million current annuity holders will be allowed to trade them in for a lump sum without a tax penalty from April 2016, Chancellor George Osborne has announced today.
The move will be popular, but Which? has warned that adequate safeguards are essential.
Find out more: What is an annuity? – see our video guide
Good value essential
Responding to the Chancellor’s announcement, Which? executive director, Richard Lloyd said: ‘This reform will be popular with those who feel trapped by their annuity, but it’s good that the government recognises it may not be the best option for everyone.
‘Pensioners who’ve been ripped off in the past must be properly protected from a second rip-off if they decide to sell it, so the government now needs to look at the best way to make this work in practice to ensure that they get good value for money.’
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Pension freedoms extended
Mr Osborne’s announcement signals the government’s intention to extend the 2015 ‘pension freedoms’ to current annuity holders from April 2016.
Tax rules will be relaxed to allow those who have bought an annuity to sell them to a third party in exchange for a lump sum. The original contract remains in place, but payments would be reassigned to the purchaser.
Unveiling the new initiative, the Chancellor said, ‘There are five million pensioners who are locked into annuities they have already bought. They should have the same freedoms as we have given everyone else.
‘For most people, sticking with that 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 are offering those approaching retirement in April this year.
‘So I am going to change the law to let that happen, and make sure we have the right guidance in place. People who’ve worked hard and saved hard all their lives should be trusted with their own pension.’
Find out more: What the pension changes mean for you – when new rules apply and what they mean
- Income options for your pension under the 2015 rules – new tax rules on lump sum withdrawals explained
- Annuities explained – how annuities provide retirement income
- Call the Which? Money Helpline – your financial queries answered