The U.K. will establish a secondary annuity market starting in April 2017, as the government continues to extend its pension freedoms.
The government announced on its website Tuesday that more than 5 million defined contribution participants in the U.K. will be able to sell their annuity starting April 6, 2017, following the removal of related tax restrictions.
Participants wishing to sell their annuity to a willing buyer are currently subject to between 55% and 70% in tax charges. The changes mean sales will be charged at a marginal tax rate.
Anyone with an existing annuity, and those who purchase an annuity in the future, may sell their right to future income streams that annuities provide. The proceeds from that sale may be taken as a cash lump sum, or put it into a drawdown account to take the proceeds of their sold annuity at a slower pace.
The changes follow a recent paper released by the government for comment in March.
The government also announced details on how the secondary annuity market will work. It said annuity providers will be offered the choice to buy back an annuity, subject to robust safeguards; Pension Wise, a free and impartial government pension guidance service, will be extended to cover the secondary annuity market; and individuals with annuities worth in excess of a certain threshold will be required to seek independent financial advice.
The Financial Conduct Authority, the U.K.’s financial watchdog, will also be asked to establish a consumer protection framework, which the government said could include consultation on a range of extra consumer protections such as risk warnings and ways for consumers to understand the fair market value of their annuities.