Chancellor shakes up annuity market

Annuity holders will be able to sell their annuity income without incurring a 55% tax charge, under plans announced by the Chancellor George Osborne.

Currently people wanting to sell their annuity income incur a 55% - or sometimes 70% - tax charge. Under the new measures, from April 2016 pensioners will only be taxed at their marginal rate if they choose to sell their annuities.

Retirees will be able to take the capital generated from the sale in lump sums or invest it using a drawdown account. The government estimates that around 5 million people will be able to take advantage of the new freedoms.

The Chancellor will reveal further details of the reforms during his 2015 Budget statement.

Chancellor George Osborne said:

"There are 5 million pensioners who are locked into annuities they have already bought. They should have the same freedoms as we have given everyone else.

"For most people, sticking with that annuity is the right thing to do. But there will be some who would welcome being able to draw on that money as they choose - the same freedom we are offering those approaching retirement in April this year."

Huw Evans, director general of the Association of British Insurers, said that annuity holders will have to pay close attention to the potential tax implications of selling their income:

"These new reforms will extend choice further but people seeking to use it will also face considerable complexities, especially around the tax implications of cashing in their annuity. That's why it is vital these changes are consulted on properly so the challenges can be thought through."

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