Posted on: 17th May 2016
Released last week, HMRC’s Creating a secondary annuity market: tax framework is scheduled to run for two months. The market itself will become active as of April 2017 and financial advice will be compulsory for those interested in taking part.
A further extension offreedoms, people will be given the option of selling their annuity contracts, purchased prior to the implementation of 2015’s sweeping reforms. Those doing so will receive a lump sum payment for their annuities, without facing sizable tax penalties.
“Subject to meeting certain conditions, it is proposed that unauthorised payments will not arise where individuals assign or surrender rights to payments under annuities payable to them that were purchased with sums and assets from a registered pension scheme, including ‘deferred’ annuities that have yet to come into payment,” the consultation explains.
In total, it is expected that some 300,000 people will make the decision to sell their annuities, of a total community of around 5 million whose pension contributions are made under annuities. Taxable lump sum payments will be received by those selling their annuities, which according to the consultation “will be treated for tax purposes in the same way as taxable lump sums received underflexibility more widely, by means of PAYE”.
“This same treatment will include scope for individuals to make use of the same in-year tax refund claims process as applies for pensions flexibility more widely.”
To date, the vast majority of experts have welcomed the government’s decision, suggesting that it could represent a double-victory where everybody wins. Along with increasing the amount of control annuity holders have over their savings, the government will also raise significant extra money at the same time.
It is widely expected that there will be significant interest in the option to sell annuities, though this is something that will be determined almost entirely by the kinds of prices investors are willing to offer. In addition, regulation of the market remains something of a grey area with a great many unanswered questions. A number of commentators have already expressed concerns with regard to the potential for investors to end up short-changed.
There are many who believe that the idea will be uniquely attractive to those with smaller annuities, for whom the prospect of a lump sum payment could be significantly more appealing than a tiny regular income of little value. The fact that financial advice will be mandatory for those interested is also seen as a comprehensively positive thing, in order to provide maximum protection for consumers from the earliest possible stage.
As always, there will be a great many residual implications to take into account, before being able to fully consider the value or otherwise of the proposed annuity sale. The decision will be considerably more complicated than it appears on the surface, which is why the government has made expert advice a mandatory measure.
For more information on the secondary annuity market or any matters relating to your own savings and get in touch with the Haven IFA team today.,