Five million pensioners can cash in their annuities from April 2016, says George Osborne
Five million pensioners who have already bought an annuity will be allowed to cash it in from April next year, George Osborne said.
A consultation was launched into plans to offer a potential escape route to people trapped in an annuity they no longer want.
For the great majority of customers, selling their annuity will not be the right decision, the Government has said.
But the option could be suitable for some people who want to exchange some of their retirement income to pay off debts, or help relatives.
Annuities provide a guaranteed, yearly payout, usually for the rest of a person’s life. They therefore act as a guarantee that that person will not outlive their savings.
But they have been controversial in recent years due to plunging rates and people not shopping around for the most suitable deal.
The reforms extend powers already granted to people who aged 55 or over from April 6 to use their pension pot how they wish, without having to buy an annuity.
Currently, people wanting to sell their annuity to a willing buyer face a 55 per cent tax charge, or as much
as 70 per cent in some cases.
The Government plans to remove the charge so that people will only be charged income tax if they cash in their annuity, at either 20 per cent, 40 per cent or 45 per cent, depending on their personal rate.
Under the plans, people will be able to sell the income they receive from their annuity if they can find a buyer, without unwinding the original annuity contract.
The annuity provider will continue to make payouts, but these will be reassigned to the purchaser of the annuity.
A Treasury document said: “The Government believes that for most people, keeping their annuity income will be the right decision - allowing them a stable and guaranteed retirement income.
“But individuals’ needs vary greatly and it is not for the state to determine how they use their income.”
Richard Eagling, head of pensions at MoneyFacts.co.uk, said many pensioners would welcome greater annuity freedoms.
He said: “Some may want a lump sum to pay off debts or help their children get onto the property ladder, while others will want to stay in control of their finances by opting for income drawdown.”