Retirees who are stuck with unwanted annuities are being given freedom over their pension income.

The Government has announced that from April 2017 annuity holders will be allowed to resell their guaranteed income for a cash lump sum.

Pension investors will have far greater flexibility over their retirement income, including being able to switch to a drawdown arrangement.

Those selling an annuity won’t be subject to the current punitive tax charge of up to 70% and will instead be taxed at their marginal rate.

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If you’re considering taking advantage of the new freedoms it’s important to realise you might not receive the amount of cash you expect. If you’ve been sold a poor value annuity and then trade it in you won’t necessarily get better value.


The Government is introducing a compulsory advice safety net to ensure people don’t make the wrong decision.

Andy Bell, chief executive of AJ Bell, says there are limitations to the new rules because there isn’t a requirement for people to have access to the whole flexi-access drawdown market.

‘We need to avoid a market where consumers are either forced or encouraged to set up their flexi-access drawdown with the same firm that buys their annuity or perhaps from a small panel of flexi-access drawdown providers with links to the annuity purchaser.

‘This could result in consumers being forced into selecting a flexi-access drawdown provider with higher costs, a poorer range of investments, a more limited choice of retirement options or a lower standard of service,’ he says.

The government estimates there are around 5 million annuity holders, receiving total income of £13.3 billion a year.

Steve Cameron, regulatory strategy director at Aegon, says retaining an annuity will be right for the vast majority of people. He says there’s a risk complex charges aren’t communicated properly and that people don’t understand the tax implications.

‘You may have a modest annuity of say £3,000 per annum and, depending on your other income, may be paying no tax on this. But if you assign it and receive say £50,000 you would pay 40% tax on part of this,’ he warns.

Issue Date: 15 Dec 2015