People who have previously purchased annuities will be able to cash them in from April 6 2017, the Treasury has confirmed.
Cashing in your annuity
Tax restrictions for people looking to sell their annuity will be removed, giving existing annuitants – and anyone who purchases an annuity – the freedom to sell their right to future income streams.
It means annuitants will have the same flexibility as new retirees, who have been able to take a cash lump sum since April.
An annuity can be appealing because it allows you to convert your pension fund into a regular income that will last for the rest of your life.
The main benefit is that your income is guaranteed. You’ll receive a fixed regular payment each year until you die.
Find out more: annuities explained – our comprehensive guide to annuities
How to sell your annuity
The government had already confirmed that people will need to get ‘appropriate financial advice’ if cashing in ‘higher value’ annuities, although it’s not yet clear at what level the threshold for advice will be set.
The Treasury also confirmed there will be a comprehensive consumer protection package to ensure people make informed decisions about their retirement savings.
Which? executive director, Richard Lloyd, said: ‘These reforms will be welcomed by consumers who want to take advantage of the new pension freedoms but it’s vital they are properly protected.
‘The government has recognised the importance of strong safeguards for consumers, but questions remain over how this will work in practice because for most people selling their annuity won’t be the best decision.’
Annuity providers will be able to buy back their own products, subject to ‘robust safeguards’. The Pension Wise service is also being extended to cover the secondary annuity market.
Find out more: financial advice explained – how to find an adviser
Annuities and the pension changes
Annuity sales have fallen as people have opted for income drawdown following the pension changes in April 2015. However, arranging an annuity with part of your pension fund might still be a sensible option to consider. Having the flexibility to change your mind and sell the annuity should give sales a boost.
Retirees may increasingly ‘mix and match’ their pension pots in the future. If you have two or three defined contribution plans, you might arrange an annuity with one of them to give you a guaranteed income source – and use the other schemes to set up income drawdown.
People buying an annuity in the future will at least have the option to sell it back, which will bring this retirement option into line with the other pension products.
Find out more: income options under the new pension rules – we round up your choices