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Retirees one step closer to secondary annuity market

Written by: Paloma Kubiak
HMRC has today published a tax consultation on the secondary annuity market, set to launch in April next year.

In the 2015 Budget, the government announced its intention to create a secondary market for pensioners who have previously bought an annuity to sell their guaranteed income in exchange for a lump sum.

The creation of a secondary annuity market extends the government’s landmark pension freedom rules to those who retired before April 2015 as they had little choice except to buy an annuity.

At the moment, people wanting to sell annuity income to a willing buyer face a 55% tax charge, or up to 70% in some cases.

There are around six million annuities currently in payment, held by around five million retired investors.  The government expects around 300,000 will choose to sell existing annuities

Tom McPhail, head of retirement policy at Hargreaves Lansdown said: “This is potentially a double win for the government, giving annuity holders the chance to exercise more control over their savings, and raising extra revenue in the process [£960m, according to HMRC documents].

“Our own research indicates a healthy appetite for this market, though that will in the end depend on what kind of price investors are offered in exchange for their annuity income. There are still unanswered questions around the regulation of the market and how consumer protection could work; we need to make sure investors don’t end up getting ripped off by their insurance company, for some of them possibly not for the first time.”

Estimates significantly underestimated

While the government estimates 6% of current annuity holders will look to exchange their regular payment for cash or another pension product, Jon Greer, pensions technical expert at Old Mutual Wealth believes this figure could be much higher.

Greer said: “Recent research we undertook with YouGov suggests this could actually be a significant underestimate, with 17% of 1,557 respondents indicating they would be interested in exchanging their annuity for cash.

“The main reasons given for doing this include wanting to invest the money elsewhere and preference for a cash lump sum over a small annuity payment. This could mean that more than 850,000 people could be looking to sell their annuity.”

However, he warned that while a lump sum may look attractive in the short term, annuities are a guaranteed income for life and may also contain additional advantages that customers should be aware of before selling. See’s Four things to consider before selling your annuity guide.

“The problem I can see with this market is that buyers are likely to have all the knowledge, and the sellers will have little to none,” Greer added.

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