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Annuity selling could be popular

Annuity selling could be popular

Category: Annuities

Updated: 26/03/2015
First Published: 25/03/2015

This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

Last week, the Government confirmed that annuity selling was in the pipeline. If the proposals are finalised, those already locked into an annuity will have the option to sell the income they receive from it, and by all accounts, many would take advantage of the offer…

Strong appetite to sell

Research from Saga has revealed a strong appetite for annuity selling should the changes come into force, with a quarter of annuity holders surveyed saying they'd like the option to sell their pot in exchange for a cash lump sum. Overall, a fifth said they'd be likely to sell their annuity if given the choice, with over half (58%) saying that the key reason for this is because the monthly income received from the annuity is too small to be able to do anything meaningful with it.

The poor value of some annuities has been well documented, with many people being left with an income of only a few pounds per month. In these cases, it's hardly worth having it, but because the pension flexibilities weren't introduced earlier, many had no other option. Now, things have changed, and the figures show that many annuitants would relish the chance to get their hands on the cash for other means.

But just what would they do with it? Well, a third said they'd prefer to invest it in an ISA or the stock market instead of keeping it locked up in their annuity, showing that many have sensible aspirations. A further 8% would use the money for day-to-day spending or to pay off debt, while one in 10 would spend it on their loved ones and just 12% would spend it on luxuries such as cars or holidays. The figures also showed that those will smaller pots would be most likely to want to sell their annuity, perhaps unsurprising when considering the income that can be achieved from smaller funds.

The need for careful consideration

"It is great that the Chancellor plans to build on trusting people with their pension savings by allowing people who already have an annuity in place to obtain a lump sum," said Saga director Paul Green. "However, this is not a decision to be taken lightly, and it will be important to get the right advice before people empty their annuity pots.

"We need a system to ensure people make a decision which is right for them in this complex area. Whilst legislation should force annuity companies to allow the resale of annuity contracts, they should also have some responsibility to make checks to protect against people being the victims of unscrupulous scams. As always the devil will be in the detail, and we need to be sure that the end customer gets a fair price."

It's this aspect that's garnering the most criticism. Making the right decision will depend on securing in-depth advice, and this will come at a cost – something that could be out of reach for those with smaller pots. There are also concerns that those already in a poor value annuity could be hit a second time when they come to sell, and early estimates suggest that they could only get back around 70% of the value of it.

That's why it's so important to seek the right advice. Knowing whether or not to sell won't be an easy decision, and if you do decide to take the plunge, you'll want to get as much as you can from the sale. Ideally, speak to an independent financial adviser if this is something you're considering, as that way you can ensure you'll be left with the most suitable outcome for your needs.

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