As reported by Your Money last month, annuity sales collapsed last year as rates of return fell to historic lows – and some believe that many holders only took policies reluctantly, due to a lack of available alternatives. “I have heard from so many who say, if the pension freedoms had been in place earlier, they would never have bought an annuity, but they had no choice at the time,” notes Ros Altmann, an independent pensions expert.

On the surface then, it would appear that the new freedoms are both timely and sensible relief for annuity holders. However, disquiet has been expressed about the reforms by those within the pensions industry – and George Osborne himself believes “for most people, sticking with that annuity is the right thing to do.” What is the correct approach?

Who can sell their annuity?

Anyone who purchased an annuity before significant reforms to the UK pension regime were outlined last year.

Annuity holders could previously opt to privately sell their annuity – however, sellers faced tax charges of 55 per cent at a minimum. Now, there will be an official auction portal for the sale and purchase of annuities, and tax liabilities will be reduced significantly.

Who can buy someone else’s annuity?

Osborne has made it clear that the new freedoms will only permit annuity holders to sell their contracts to institutional purchasers – organisations such as banks, building societies, trusts and funds, which will buy annuities in bulk.

Can I sell my annuity back to its provider?

Sadly, selling one’s annuity won’t be quite as clean as simply handing it back. Osborne has plainly stated that “an original annuity provider will not be able to purchase and then discontinue their own customers’ annuities.”

Should I sell my annuity?

The decision will be unique to every individual annuity holder. For instance, pensioners who purchased their annuity 10, 20 or 30 years ago could be receiving a decent annual income from their contract – whereas those who bought their annuity in the past few years could be receiving virtually nothing.

However, even if an annuity’s return is poor, this is not in itself a strong argument for selling an annuity – after all, sale of that annuity could also net the holder only a tiny capital sum in return. For instance, according to figures released by Fidelity, an annuity paying a £7,000 annual income would sell for approximately £48,000.

The industry at large has generally responded negatively to the reforms. Alan Higham of Fidelity has warned holders not to sell their annuities in the strongest possible terms, believing that “people would get appalling value for money if they were to sell their annuity.”

Tom McPhail of Hargreaves Lansdown believes the change will lead to “insurmountable risks and costs” for annuity holders. “People may be enticed into selling their annuity, and later regret it…the risks involved will outweigh any potential benefit.”

Nigel Green of deVere Group believes that “individuals will be charged excessively high fees to cash-in their annuity and can expect poor value in return for them.” He urged those considering selling their annuity to seek independent financial advice before doing so.

However, some responded positively to the news. “Savers should have the flexibility to choose their own investments and the opportunity to escape the dismally low interest rates that have hampered savings growth for so long,” said Kevin Caley of ThinCats.

“The proposals will create a much fairer landscape where people have the freedom to do what they want with their savings and shape their own retirement,” Karen Barrett of Unbiased.co.uk believes. “I’m pleased the Chancellor is putting control back in the hands of consumers

How much can I sell my annuity for?

The new provision means annuities will be sold via auction – as a result, holders can sell their annuity for as much as bidders are willing to pay for it.

However, it is important to bear in mind that bids will not merely be calculated according to the value of a contract – as the life expectancy of a holder dictates how long an annuity will offer a return, the age and health of a holder will be considered likewise.

In terms of figures, while Higham evidently believes sellers will receive very little, others forecast a rosier returns picture. According to research issued by Hymans Robertson, recent annuity buyers (those who purchased within the past five years) could receive as much as they originally put in.

When can I sell my annuity?

At present, there is no set date for the implementation of the measures – and no official marketplace for the sale of annuities has been outlined. A consultation has been launched, however. Your Money will keep readers updated on its progress over time.

Will my annuity sale be taxed?

Any money received from the sale of an annuity will be taxed as income – meaning that any sum over £10,000 received on a sale will be liable for taxes.