Chancellor George Osborne earlier announced plans to extend pensions freedom to those already retired, potentially allowing five million annuity contract holders to sell their guaranteed income for cash.

The document said: “There is a strong case for requiring annuity holders to take financial advice from an independent financial adviser, with a requirement for annuity providers to check this before they enable the annuity to be assigned.

“This mirrors the requirements now in place for when people convert from a defined benefit to a defined contribution based pension during their accumulation phase, where the value of the pension is above £30,000.”

The paper said regulated advice would ensure people get the tailored help they need and a recommendation on whether assigning their annuity to a third party would be in their best interests.

“People would still be at liberty to choose not to accept a recommendation,” the paper said.

However, the government admitted: “Regulated advice can be expensive, as individuals could have to pay several hundred pounds or more, which might be a significant proportion of the value of their annuity.

“However, following on from the FCA’s recent clarification of rules around simplified advice and new business models for online and telephone advice, there are new, expanded opportunities for the advice sector to meet the growing demand for advice on pension issues; the government believes that this could be a potential new market for advisors.”

The paper said the advice requirement could be restricted to those looking to assign annuities that are valued above a specific threshold, akin to the defined benefit transfer limit of £30,000.

“A means of approximating the value of the annuity in advance of advice would be needed under this approach. Consideration would also need to be given to what support is provided to those with annuities valued below this threshold.”