The second-hand market will be for those who have already used their private pension pot to buy an annuity. Many complain they are trapped in poor-value annuities – which also disappear on their death rather than pass on to heirs. However, the Chancellor reckons that “for most people, sticking with that annuity is the right thing to do”. People who are in their late 80s or 90s generally have very good annuities – some of them paying an income of 15% a year, which they will not want to swap.
On the other hand, if you have taken out an annuity in the past couple of years, when rates have fallen to historic lows, you may want to obtain a quote on how much it might get if you cash it in. Holders of annuities who bought in the last five years could get back as much as they put in, despite the fact that they have already been drawing an income.
The Government says:
“Individuals may want to sell an annuity, for instance, to provide a lump sum for relatives or dependants; pay off debts; in response to a change in circumstances, for example getting divorced or remarried; or to purchase a more flexible pension income product instead.”
The government has also indicated that the market will operate with your annuity income being offered at auction, with only financial institutions bidding for it. You sell it to the highest bidder for cash, then the annuity company pays the buyer the income that you would otherwise have been receiving until you die. The older or less healthy someone is, the less they will receive for their annuity as the buyer will only receive the income until the seller’s death.
Be aware that the cash you could receive on the sale of your annuity next year will be taxable in the same way as any other income you receive in that tax year. People wanting to sell their annuity income to a willing institutional buyer currently face a 55% tax charge, rising in some cases to 70%.
No second-hand market for annuities yet exists, so the government has launched a consultation on the measures needed to establish one. Like the new arrangements that enable pre-retiring individuals to cash in their pension pots, the second-hand market place could attract the attention of fraudsters and the government will also be working with the Financial Conduct Authority and other bodies, to put consumer protection measures in place as part of the consultation.
Sources: www.gov.uk; www.fca.org.uk; (Current published material – March 2015)
