The creation of a secondary annuity market extends the government’s landmark pension freedom rules introduced this year.

From 6 April 2017, tax restrictions for people looking to sell their annuity will be removed, giving five million people with an existing annuity, and anyone who purchases an annuity in the future, the freedom to sell their right to future income streams for an upfront cash sum.

Currently, people wanting to sell their annuity income to a willing buyer face a 55% tax charge, or up to 70% in some cases. The government will remove this charge, so people are taxed only at their marginal rate.

Under the new rules, retirees will be able to take the annuity as a lump sum, or place it into drawdown to use the proceeds more gradually.

The government will extend its free Pension Wise service to cover the secondary annuity market and require consumers to seek independent financial advice for annuities worth above a certain threshold.

It also plans to create an online tool to help consumers work out an estimated value of their annuity.

Should you sell?

While the creation of a secondary annuity market has been widely welcomed, experts agree that for most people, selling an annuity – the only product on the market available to retirees looking for a guaranteed income for the rest of their lives – will not be the best decision.

Minister for Pensions Baroness Altmann said: “The new pension freedom reforms are crucial in allowing people to make the most of their hard-earned savings.

“Keeping an annuity will still be the right decision for the majority of people. But some were forced to buy annuities in the past that may not have been suitable for them – and I am delighted that this reform will allow more people greater choice and the opportunity of a more flexible income stream.

“For the vast majority of customers, selling an annuity will not be the best decision. However, individuals may want to sell an annuity for instance to provide a lump sum for relatives or dependants; in response to a change in circumstances; or to purchase a more flexible pension income product instead.”

Tom McPhail, head of retirement policy at Hargreaves Lansdown, said: “This is welcome confirmation of a widely expected announcement, which will now give millions more pension investors greater flexibility over their retirement income. Selling a guaranteed income will not be right for many people. Access to market competition to secure the best price and suitable information, guidance and advice should help to ensure that ordinary investors are protected and can make the best possible use of their money.”

Plans to create a secondary market for annuities were first announced in the March 2015 Budget.

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