The government has confirmed that the secondary annuity market will not extend to defined benefit (DB) workplace pension schemes.
From 6 April 2017, the government will remove tax restrictions for individuals looking to sell their annuity. This will enable those with an existing annuity, as well as anyone who purchases an annuity in the future, to sell their annuity for an upfront cash lump sum or to place it into drawdown.
Only annuities belonging to an individual and held in their own name will be eligible for the new freedoms.
The announcement follows the government’s consultation into the introduction of a secondary annuity market, which was open to responses in March-June 2015.
The consultation found that there were mixed views about whether the scope of the secondary annuity market should be limited to annuities held outside of occupational pension schemes, as proposed in the consultation document. Most respondents agreed with the scope suggested on the basis that annuities in the name of the pension scheme are scheme assets and the member does not own the annuity.
Other respondents to the consultation thought that excluding annuities within an occupational pension could be seen as arbitrary, could lead to a divergence of opportunity and inequality, and would not allow the largest possible number of savers to participate.
To support the secondary annuity market, there are plans to introduce a comprehensive consumer protection package to ensure people make informed decisions about their retirement savings.
The Pension Wise service will be extended to cover the secondary annuity market, and the government will also work with industry and the Financial Conduct Authority (FCA) to create a simple online tool to help annuity holders to work out the estimated value of their annuity.
Ros Altman (pictured), minister for pensions, said: “Keeping an annuity will still be the right decision for the majority of people. But some were forced to buy annuities in the past that may not have been suitable for them, and I am delighted that this reform will allow more people greater choice and the opportunity of a more flexible income stream.”
Tom McPhail, head of retirement policy at Hargreaves Lansdown, added: “This is welcome confirmation of a widely expected announcement, which will now give millions more pension investors greater flexibility over their retirement income.
“Selling a guaranteed income will not be right for many people. Access to market competition to secure the best price and suitable information, guidance and advice should help to ensure that ordinary investors are protected and can make the best possible use of their money.”