Government U-turn: Selling annuities is no longer on the cards

Did you buy an annuity because you thought you had to?

Are you unhappy about the amount it pays you?

Do you wish you hadn’t bought it?

If so, it probably really hurt when the government introduced the pension freedoms.

Without warning, if you had the right type of pension you were given total flexibility over it… unless you’d already bought an annuity with it. Even if it was bought the day before the freedoms were announced.

But then, there was a twist. A ray of hope! The former pensions minister Steve Webb suggested that people should be able to sell their annuities.

Widely dismissed at first, the idea started to get some support.

The government said it’d look into it.

And then, Yes! The government confirmed that from April 2017 there would be a secondary annuity market.

At that point thoughts might have started swirling around your head – pretty soon I can be free of this monthly income, and use the refund to spend or invest it how I choose.

This was in the heady days before the EU referendum, though. Following the Brexit vote we had a new prime minister and chancellor – and it didn’t take long for them to dash the hopes of anyone who had been looking forward to selling their annuities.

After what may have felt like an emotional game of tug-of-war with all the uncertainty, the secondary annuity market has been officially scrapped.

Why has the government done a U-turn? Isn’t this hurting people?

There’s no doubt that some people will be angry about this. But here’s the thing: getting rid of your annuity isn’t like returning a pair of trousers to M&S.

For this idea to work, there needed to be a secondary market of people willing to buy annuity payments. Basically they’d give you a lump sum, and then receive your annuity payments. If you’re receiving a big monthly sum and likely to live for another 50 years, they’ll be very happy indeed. But you would also be unlikely to want to give up a secure income for life if that was the case.

The likelihood is that most of the people selling their annuities would be receiving smaller amounts, or be in poor health. That makes it much less tempting for the buyer.

In fact, it’s a pretty risky thing for the buyer anyway. They’d want to make a profit, which means paying as little as possible for your annuity income. You would have probably been required to have a medical, and any overheads or admin costs would have been deducted from your lump sum, too. Add to that the tax you may have owed on it and you could be looking at a much smaller amount of money than you had hoped for.

And after all that, you would have also lost your secure income.

Is it any wonder the government was concerned about consumer protection?

But I was counting on having the lump sum

Having been told that you’ll be able to do something, it’s never nice to hear that actually you won’t be.

It might not seem like it today, but the truth is this decision is the right one for the vast majority of people.

The prospect of a lump sum is tempting, sure. But how are people likely to feel having a significantly smaller amount of money than they had expected, and no longer having a set amount of money coming into the bank account every month?

It’s that second part, giving up the regular income, that really needs serious thinking about. After all, when people are working one of the biggest concerns they have is losing their job – and their income. Knowing that there will always be a steady amount of money is a level of security that shouldn’t be underestimated, especially as they won’t be able to get it back once it’s gone.

A lump sum may solve an immediate concern, but will their future selves be very grateful for losing the security?

What options do I have now?

If you’ve got an annuity that you were looking to sell, there’s currently nothing you can do about it. Unless the government has a drastic change of heart, the secondary annuity market won’t be happening anytime soon.

If you have other pensions then all may not be lost.

If you have an eligible pension that you haven’t sold for an annuity, you should be able to take lump sums from it as and when you want to. And if you have a final salary scheme, you may be able to transfer out of it and take it as cash instead. Don’t dive straight in though – taking money from your pension isn’t right for everyone, because it could mean you give up great benefits or have less to live on in the future. That’s why it’s important to talk to a regulated financial adviser first, as they can help you make the right decision.

The other source of income to think about is the State Pension. It can be a huge boost, especially if your annuity isn’t paying as much as you’d like. Like an annuity, you know exactly how much you’ll receive for the rest of your life. If you’d like more, you may be able to a top-up to increase the amount it pays out.

Earlier this year the State Pension underwent some big changes, including how much you might receive and when you can start claiming it.

We’ve put together a brief factsheet that explains the changes we think you’ll be most interested in. To get your copy, just click on the button below.


Download your guide now

Add new comment

Call 0800 304 7288 for a friendly chat about your pension

Portafina staff

Under 30s need family help to buy first house

Rising house prices and slow wage growth are making it harder for first-time buyers to get on the property ladder without help.


Discover More

Signing contracts

The facts about using a pension to buy property

Before you raid your pension to buy a second home, you need to make sure you know what it could cost you.


Discover More

Woman running into sunset

How to use your home for retirement income

Equity release has come a long way since the 1990s. High house prices and new options are making this a popular option again.


Discover More

Important information

[i] [ii] [iii]

The details provided in this article are for general information only and are in no way deemed to be financial advice. All of the material is correct as of the publication date, but could be out-of-date by the time you read the article. For our latest information and news, please see our articles section:

We are really looking forward to reading your comments. Before you start writing, please just remember that everything you write will be displayed publically – including your name. Not sure what sort of thing you can write, and what sort of things you should avoid? Please have a quick read of our social rules for guidance.

Back to top