It is expected that up to 5 million pensioners who have bought an annuity will be in a position to cash their annuities from April 2016, according to Chancellor of the Exchequer, George Osborne. Until now, pensioners locked into an annuity have only been able to exit by paying a tax charge of at least 55%.

Annuities provide a guaranteed, yearly payout, usually for the rest of a person’s life. But they have been unpopular following a fall in interest rates and because of the fact that when a pensioner dies, the annuity dies with them, rather than going into their estate.

In last year’s budget, George Osborne announced that people aged 55 or over in pension schemes will no longer be required to a purchase an annuity with their savings upon retirement.

Currently, people wanting to sell their annuity to a willing buyer face a 55% tax charge, or as much as 70% in some cases.

The chancellor said: “For many an annuity is the right product, but for some it makes sense to access their annuity now.  So we’re changing the law to make that possible. From next year the punitive tax charge of at least 55% will be abolished.  Tax will be applied only at the marginal rate.  And we’ll consult to ensure pensioners get the right guidance and advice.”

The Government believes that for most people, keeping their annuity income will be the right decision – allowing them a stable and guaranteed retirement income.

That said, for the recently retired the option to cash in their annuities could be attractive.  The lump sum received for many pensioners could be help to pay off debts or help their children get onto the property ladder, while others may want to stay in control of their finances by opting for income drawdown.

Figures from Fidelity Worldwide Investment suggest that a £100,000 pension pot that was used by a 65-year-old to buy a £7,000-a-year annuity 10 years ago would sell for around £48,000 today. In other words, the now-75-year-old is giving up their £7,000-a-year income for just £48,000, which may not sound like a good deal, given that they may easily live another 10 years or more.

It estimates that someone who used their £50,000 in savings to take out an annuity five years ago when they were 65 would have been given an income of £3,600 a year – so they would have had £18,000 in payments so far. It then reckons the now-70-year-old would be able to sell it for £58,900 – i.e. leaving them with £8,900 more than they had five years earlier, despite taking the income.

The chancellor promised guidance and advice for those planning to sell an annuity make the right decision.

If you would like information about annuites, call us on +34 698 243 745 or Contact Us Today

GC QROPS has been successfully assisting UK expats in Spain with UK pension transfers for 9 years since 2006.

We are completely independent, and can advise on a wide variety of QROPS pension schemes – we are not tied to any single provider, which means that we will recommend the scheme which meets your exact requirements and needs.