At last pensioners can soon cash in their old annuities

1 min Read Published: 16 Dec 2015
cash in your annuity
You will soon be able to cash in an old annuity

The Treasury has confirmed that more than 5 million people who bought annuities will be able to turn them into cash from April 2017. Pension changes implemented in April 2015 gave people the right to access the cash from their money purchase pension arrangements rather than having to purchase an annuity that provides an income in retirement. However, those who had already purchased an annuity feel discriminated against as they were unable to enjoy the same pension freedom as those who had not yet purchased an annuity. This Treasury announcement is an attempt to provide a level playing field for all retirees.

Cashing in my annuity, how will it work?

Although the finer details are still to be announced, essentially a person currently owning an annuity will have the ability to sell their annuity back to the annuity provider. The annuity provider may then sell this annuity on to a third party investor in a new 'secondary annuity market'. There are concerns, however, that consumers wanting to take advantage of this new arrangement may be disappointed with the cash return as any purchaser would be looking for a discount on the original investment.

How much am I likely to get for my annuity?

The amount you could get for your annuity will depend on a number of factors:

  • if you sell an annuity it will provide a income to the new owner until you, the original owner, dies which will have an impact on the value
  • your age when you sell the annuity, this will give an idea of how long any income will be paid to the new owner
  • your health at the time of the sale
  • the prevailing annuity rates at the time of sale

Are there any drawbacks to selling an annuity?

  • an annuity provides an income for life and should still be considered when retirement planning. Selling an annuity may not be the best course of action for your circumstances and you should always seek professional advice
  • as outlined above there are a number of factors that can affect the sale price of any annuity and you may not get back as much as you were hoping for
  • there will still be a potential tax liability if you sell your annuity as tax will be charged at your marginal rate
  • it is possible that individual annuities could be bundled together and sold to institutional investor which could open up the market but may drive down prices as investors look to get a good deal on their investment
  • those with higher value annuities will be required to pay for independent financial advice on a proposed sale. The Financial Conduct Authority is to consult on a consumer protection framework