With the recent welcome announcement that savers will be allowed to sell their annuities as of next year, Acumen discusses what freedoms this will bring.
The government has confirmed a plan that will allow savers to sell annuities from April 2016 onwards, with the restrictions and tax penalties on buying and selling existing annuities removed. They want to make it possible to sell the income received from an annuity without unwinding the original contract.
At the moment there is a 55 per cent tax charge on selling an annuity and this goes up to 70 per cent in some cases. The government is set to remove this charge, so people will only be taxed at their marginal rate.
Annuity holders will then have the freedom to use that capital as they wish, with the 2014 Budget pension freedoms to extended to a further five million people who have already bought their annuity.
They will be able to choose to take it as a lump sum or place it into drawdown to use the proceeds more gradually.
The government will launch a consultation on the matter later this week.
Chancellor George Osborne said:
There are five million pensioners who are locked into annuities they have already bought. They should have the same freedoms as we have given everyone else
‘For most people, sticking with that annuity is the right thing to do. But there will be some who would welcome being able to draw on that money as they choose – the same freedom we are offering those approaching retirement in April this year.
‘So I am going to change the law to let that happen, and make sure we have the right guidance in place.’
Lib-Dem Pensions minister Steve Webb first mentioned the idea in January. At the time he stressed that it was not government policy, and nothing would be in place by April or before the general election in May.
Acumen Financial Partnership are perfectly placed to provide unbiased advice on these new proposals and with our highly experienced team of specialists we’ll be there to make sure you get the right financial advice and don’t lose out.