Five million people trapped in poor paying annuities can sell them as a result of a new government plan.
The measure is aimed at helping out millions of retirement savers who had to cash in their pension pots before new flexible access rules came in during April 2015.
From April 2017, they will have the opportunity of trading their annuities in for a lump sum.
From that date, the government will lift tax restrictions on annuities giving anyone the right to sell the contract.
An annuity is an insurance product that pays a guaranteed income for life.
Many were forced to buy an annuity with their pension fund until the government swept away that requirement with unrelenting retirement saving reforms over recent years.
Secondary annuity market
The rule change will let annuity holders sell their contract or put the money into drawdown in the same way as pension savers can spend their saving pots.
The new rules will require:
- Only annuities held in the holders name are tradeable
- All annuity providers and brokers must sign up for Financial Conduct Authority (FCA) regulation
- An option for annuity providers to buy back their contracts
- Annuity holders with contracts above a set threshold will have to pay for financial advice before cashing in their contract
Economic Secretary to the Treasury Harriett Baldwin said: “We foresee that most people will want to stick with their annuity for the same reasons they bought it in the first place, but some will welcome the chance to draw the money and spend it.
Spend retirement cash as you like
“In effect, we are giving annuity holders the same spending freedoms as we gave pension savers earlier this year.
“People who have made the effort to save for their retirement should be trusted to spend their money wisely and that’s why we are changing the rules by setting up a secondary annuity market.”
Annuity providers are warning that creating a secondary annuity market is financially risky for some retirement savers.
“We cannot skimp on regulation and the need for expert advice for people taking this option,” said a spokesman for annuity firm Fidelity International.
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