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16 Dec 2015

Government confirms annuity sale rights from 2017

The government has confirmed that as of April 2017, pensioners will be able to sell their annuities for one lump sum, BBC News reports.

The new legislation means that savers who have purchased an income for life along with their pension savings will be able have that deal reversed in just over two year´s time.

Safeguards will be put into place, says the government, so that people can avoid making bad decisions when it comes to choosing what to do with their money.

According to pensions minister Baroness Ros Altmann, keeping their annuity will still be the wisest choice for the majority of pensioners.

Government figures suggest that some five million individuals have bought annuities, earning a combined income of around £13 billion each year. Annuities sold at the moment are subject to a tax charge of 55-70%, which means that for most people it is not the best option.

But as part of the government´s proposed pension changes, people who choose to sell their annuity for a lump sum will only have to pay tax at their highest marginal income tax rate.

Another rule in the proposals is that insurance firms would be able to buy annuities back from their own customers; however, this would be conducted via an intermediary to ensure that customers get the best possible deal.

Commenting on the proposals, Adrain Walker from Old Mutual Health said that “a lump sum may be viewed as more valuable” by “those currently in receipt of a small regular payment.”

“A survey we undertook with YouGov suggested that less than 20% of people would consider selling their annuity, with the major factor for this reluctance being a concern they would not receive value for money,” he noted.

The Treasury has stated: “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.”

Copyright M2 Bespoke 2015

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