The new freedoms also come with a caveat that individuals will be required to seek independent financial advice for annuities above a certain threshold. The government says that what constitutes a relevant annuity and the threshold – including how it will be calculated and whether it should be set in relation to an individual’s financial circumstances – will be set subsequently by secondary legislation.
The government says the move will extend its landmark pension freedoms and create a new secondary annuity market.
In the government’s response to the recent consultation into the introduction of a secondary annuity market, the government confirmed that from 6 April 2017 tax restrictions for people looking to sell their annuity will be removed.
This will give five million people with an existing annuity, and anyone who purchases an annuity in the future, the freedom to sell their right to future income streams for an upfront cash sum.
Under the new changes retirees will be able to take the annuity as a lump sum, or place it into drawdown to use the proceeds more gradually, says the government.
The Economic Secretary set out details on how the new secondary annuity market will work, including:
• setting out that pension annuities belonging to an individual and held in their own name will be eligible for the new freedoms
• requiring that all UK-based annuity purchasers and intermediaries are regulated by the FCA
• allowing annuity providers the choice to buy back an annuity, subject to robust safeguards
• introducing a comprehensive consumer protection package to ensure people make informed decisions about their savings, including:
• extending the free and impartial Pension Wise service to cover the secondary annuity market
• requiring individuals to seek independent financial advice for annuities above a certain threshold
• asking the independent regulator, the FCA, to put in place a consumer protection framework which could include consulting on a range of extra consumer protections, such as risk warnings and ways for consumers to understand the fair value of their annuities
The government has also responded to consultation feedback and will work with the industry and the FCA to create a simple online Ms Baldwin said: “For most people, sticking with an 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 gave people approaching retirement in April this year.
“That’s why I’m delighted that we’re extending our landmark pension freedoms to over five million people with annuities from April 2017.”
Minister for Pensions Baroness Altmann said: “The new pension freedom reforms are crucial in allowing people to make the most of their hard-earned savings.”