The government is considering extending its plans to allow savers to sell their annuities to include future purchases, New Model Adviser® understands.
In his Budget this year, chancellor George Osborne announced plans to remove the restrictions on buying and selling existing annuities by April 2016.
Under current rules, people who wish to sell their annuity income to a willing buyer face a 55% tax charge, rising to 70% in some cases.
However, in June the Association of British Insurers urged the government to delay the introduction of the start date of the new rules to ensure consumers were fully protected by regulation.
In the Summer Budget, the government agreed and delayed the creation of a second-hand annuity market until 2017.
New Model Adviser® understands that the government is looking at whether to include future annuity purchases into the second-hand annuity selling scope.
That would mean anyone buying an annuity after 2017 would be able to get a cash sum for selling their policy.
The government had never specified what its original cut off point would be for ‘existing’ annuity purchases.
Tom McPhail, head of retirement policy at Hargreaves Lansdown, said he expected the idea to be included in the government’s plans, and that the market would struggle without its inclusion.
‘For what it’s worth, I think they would struggle to create a market if it were only going to relate to the “back book” because the brokers who build the plumbing will want pay back, and if it’s just a short term market that exists only to serve the thousands of people looking to a do a transaction in the short term, I’m not sure how many people would be bothered about creating it in the first place if the market then died away.’
Andrew Tully, pensions technical director at annuity provider Retirement Advantage, said that the idea would be appealing to the government, but that it was still important to protect consumers who may have purchased poor value annuities in the past.
‘In the true spirit of the pension freedoms, I can see how this might be appealing. But, and this is a big but, we need to create a market which protects the consumer, who may well have purchased a poor value annuity originally, and potentially receives similar poor value following a re-sale.’
A Treasury spokeswoman declined to confirm whether it was looking at this, but said the government’s policy paper would be revealed in due course. It is expected before the end of the month.
‘We’ve consulted on the secondary annuity market, that consultation has now closed and we are considering the responses,’ she said.
‘We will publish the government’s response in due course setting out how the market will work.’
Source New Model Adviser.