Busget 2015: Chancellor George Osborne (pictured) has confrmed that the pension freedoms have been further extended to remove the restrictions on buying and selling existing annuities.
From April 2016, pensioners with an annuity will be able to trade it in without a tax penalty. This means that approximately five million pensions will be able to exchange their existing annuities for cash should they wish.
The legislation is aimed at allowing pensioners to sell on their annuities, with the returns then allowed to be taken as a lump sum or placed into drawdown.
These freedoms will enable those at or nearing retirement, who have already purchased an annuity, to make their own decisions, and choose how they want to spend their retirement savings.
Currently, people wanting to sell their annuity to a willing buyer face a 55% tax charge, or up to 70% in some cases. The government will remove this, so people will be charged at their marginal rate.
Jeff Lynn, chief executive officer of investment firm Seedrs said:“We welcome today’s Budget announcement that those already in retirement and with an annuity will able to join working people cashing in all or part of their defined contribution (DC) pension when they retire.
“With greater investible capital, those in or approaching retirement will need to diversify their investments and income.”
Steve Groves, chief executive officer of financial solutions organisation Partnership Assurance, added: “The creation of a well-regulated carefully-designed secondhand annuity market could mean that peoples annuities are now more flexible, still guaranteeing an income for life but also able to provide some extra cash when it is needed.
“It will provide those five million older people who have already taken an annuity with a greater degree of flexibility.
“Extending the freedoms to past-annuitants and providing future generations with even more flexibility is simply not good enough unless it has a genuinely positive impact on their lives. This needs to be at the heart of the consultation.”