Pension Wise to extend service to advise on secondary annuity market
Friday, September 16, 2016
The government plans to create further access to Pension Wise for those considering selling their annuities.
From April 2017 the government will launch the secondary annuity market.
The original announcement of the new freedoms was back in the budget of March 2015 but the launch has been delayed until April next year.
Pension Wise will be providing a service which will guide individuals who are considering selling their existing annuities.
From April, individuals may be able to sell their existing annuity for a cash lump sum or an adjustable income placed into an income drawdown plan.
'The government intends to allow annuities owned by an individual and held in their own name to be sold. However, the original contracts will still be in place and the third party will need to agree to take on the original terms of the annuity payments.
It is currently possible to sell an annuity but the penalty is high and the seller would face a tax charge of up to 70%. The government will scrap this, so people are taxed only at their marginal rate.
Critics believe that there are risks and if the decision isn't made properly then pensioners will be giving up the right to a guaranteed income and could be left with less than they thought.
Tom McPhail, pension expert at Hargreaves Lansdown warned that "selling a guaranteed income will not be right for many people, and it could be a dangerous step."
However these concerns may not be as desperate as McPhail predicts.
Adrian Walker, at Old Mutual Wealth, said: "A survey we undertook with YouGov suggested that less than 20% of people would even consider selling their annuity, with the major factor for this reluctance being a concern they would not receive value for money," he added.
"However individuals may want to sell an annuity for instance to provide a lump sum for relatives or dependants; in response to a change in circumstances for example getting divorced or remarried; or to purchase a more flexible pension income product instead," says the treasury.
The FCA has set up proposed standards for the guidance Pension Wise will offer. The consultation on the proposal will close on 4th October.
Published 09.09.2016
ceri.pugh@wilmingtonplc.com
