Pension freedoms to be extended to annuities

Pension freedoms which will allow savers to access their savings without any penalties from 6 April 2015 will be extended to those who are already in retirement.

George Osborne will announce in his budget on Wednesday (18 March) that pensioners will be able to sell their annuity from 6 April 2016.

The chancellor said: 'We've already given freedom to people saving for a pension, what we're going to do today is give freedom to the five million pensioners who have an annuity.

'Now for many of them that will be the right thing to have, but some will want access to that money so we're going to change the law.'

Currently pensioners who want to sell their annuity face a 55 per cent tax charge and up to 70 per cent in certain cases.

The changes will abolish both these charges and people will only be taxed at their marginal rate.

Proceed with caution

Joanne Segars, chief executive of the National Association of Pension Funds, has said that the changes are welcome, but safeguards need to be put in place to protect savers.

'It's clear to see how this fits with this government's agenda for pensions but what is less clear is how savers will be protected. A full consultation will be essential to ensure a fair and balanced market is created,' she said.

She added: 'The consultation would need to look at how the buy-back price of an annuity would be calculated so people selling their annuity could be assured of good value.'

Binyamin Ali is assistant editor of Private Client Adviser