HMRC has published a consultation, with the stated intention that ultimately this will lead on to legislation which goes into the Finance Bill 2017 and the new rules will take effect from 6 April 2017.
Around five million people will be able to trade their annuity income for a cash lump sum from April 2017, via a broker model, it has been estimated.
Annuity providers will need to decide if they will allow their customers to trade or not because there will be no legal requirement to do so.
The Government published its response to a proposed policy framework around the future secondary market for annuities in December and today’s publication is the next step.
According to the HMRC document, the creation of the secondary annuities market aims to extend the pensions freedoms by removing tax rules that “currently deter individuals from assigning or surrendering rights to receive income payments under pension annuities”.
Proposals include that unauthorised payments will not arise where individuals assign or surrender rights to payments under annuities payable to them that were purchased with sums and assets from a registered pension scheme, including ‘deferred’ annuities that have yet to come into payment.
The HMRC papers stated: “The new tax rules will permit individuals to assign or surrender annuities payable to them that were purchased in respect of money purchase or defined benefit arrangements, regardless of whether the annuity being assigned or surrendered is treated under the current tax rules as a lifetime annuity or a scheme pension, or represents rights in respect of a beneficiary under an annuity that is a dependants’ annuity, a nominees’ annuity, a successors’ annuity or a dependants scheme pension.”
It said: “It is not intended that these new tax rules will override any other contractual, (non-tax) legislative or other legal restrictions that prevent individuals from assigning or surrendering annuities that are not in their name.
“The annuities capable of being assigned or surrendered will include annuities that were purchased as replacements for the annuities described above that were originally purchased with sums and assets from a registered pension scheme (for example, following the transfer of an annuity from one provider to another).”
Andrew Tully, pensions technical director at Retirement Advantage, said: “We need to ensure that people who currently receive poor value annuities do not think the secondary market is their means of escape. Two wrongs will clearly not make it right, trading your annuity is not the panacea for the lack of shopping around at retirement.
“Far too many people continue to receive poor value from their annuity purchase, with the most recent figures showing the number of people shopping around has fallen significantly since pension freedom was introduced. The Government and regulators need to take action to fix this and reduce what is extensive consumer detriment.”
He said: “There is no doubt some customers will find the sale of their annuity an attractive idea. People with very small annuities may find a capital lump sum more appealing than a small monthly income.
“It is good to see a decent level of consumer protection being built in from the start, which is likely to be based around income levels.”
The HMRC consultation runs until 15 June. Responses to eight questions outlined in the document on the HMRC website should be emailed to This email address is being protected from spambots. You need JavaScript enabled to view it. or sent by post to:
HM Revenue & Customs
Savings and Pensions Policy team Room G/53, 100 Parliament Street Westminster
LondonSW1A 2BQ
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