We have had many changes to pensions legislation over the last 12 months and most of them have been excellent news for savers. Because of this, it has now become obvious that there is a need for a second-hand market for pension annuities. As people have been given more freedom with their pensions, they now want this to apply to one of the most inflexible of pension options, and why not?
The current expectation is that there will be a fully operational second-hand market in annuities from 6th April, 2017. This will allow anyone who currently takes an income from an existing annuity the chance to sell it for a cash lump sum.
It is also expected that there will be the option to convert existing annuities into the more flexible drawdown contracts, which would allow the income taken to be varied until the pension pot is spent.
Currently, anyone who wants to sell their annuity faces a tax charge ranging from 55 per cent to 70 per cent. The proposal for 2017 is that you will be charged only at your marginal rate of tax.
Keeping an existing annuity will be the best course of action for many people, as it provides a guaranteed income for life. For some people though, it will allow a greater freedom of choice to move away from a system that is quite restrictive and in some cases unsuitable.
We can’t yet be certain that these proposals will became law, especially with the amount of pension reform we have seen recently. If the second-hand market is indeed introduced, it is almost certain to be a requirement to take advice before any changes can be made. It is also likely that anyone wanting to sell their annuity will have to answer many health questions and in many cases even undergo a medical.
There will be much written about this over the next 12 months and no doubt there will be a few sensationalist headlines, but everyone should think very carefully before giving up what is a guaranteed income, no matter how long they live.
David Hill is a Chartered Financial Planner and Trust & Estate practitioner at Hills Financial Planning, 15 Agnew Street, Larne. He can be contacted on 028 28276814 or by email: firstname.lastname@example.org