Today, new research issued by Tilney Bestinvest reveals that almost a fifth of existing annuity holders (17 per cent) would consider selling their guaranteed incomes for a cash lump sum.

Of the remaining respondents, 33 per cent said they would not consider selling the annuity they have purchased for a cash lump sum; 50 per cent said they didn’t know.

“While this announcement certainly grabbed the headlines and is likely to be popular with some retirees for whom “annuities” has become an almost dirty word as a result of the depressed gilt-yields that have driven annuity rates, the practicalities of implementing the policy are far from straightforward,” remarks David Smith of Tilney Bestinvest. “Indeed, those looking to receive their original annuity investment minus what they have already taken from their annuity will likely be severely disappointed for several reasons.”

“It has been announced that insurance companies who currently provide annuities will not be able to enter the market, and therefore the function of selling annuities will be carried out by third party brokers. This cost, coupled with the fees involved in medical underwriting which will be required to carry out the encashment, means that the overall fees for selling an annuity are likely to be substantial. These are on top of the tax which would need to be paid when receiving the cash, payable at your highest tax rate as well as any financial advice taken.”

“As it is more likely that those with smaller annuity pots will be the ones most tempted into selling them due to the low levels of income received, the combination of these costs will have a considerable impact, perhaps even prohibiting the sale.”

“Cashing in your guaranteed source of retirement income is a serious financial decision, indeed even Chancellor George Osborne said that for most people, “sticking with that annuity is the right thing to do”. In the majority of cases we would argue that encashment should only be undertaken in the light of professional advice.”

Despite the apparent unpopularity of annuities, they may still be a sensible option for many retirees. For more information, please visit the Your Money article ‘Why would anyone want an annuity?‘. Those interested in selling their annuity may wish to visit the Your Money article ‘Should you sell your annuity?‘.