Treasury approves second-hand market for annuities

The Treasury has finally given the green light to a new second-hand market in annuities as part of its pension freedom policy.

But the news was greeted with caution by some in the City who warned that there must be no return to the rip-off days of the Seventies and Eighties when many savers sold their annuities for a fraction of their worth.

More than five million people own annuities paying out around £13.3 billion of income a year. The capital value of those annuities is estimated to be about £200 billion.

From April 2007, the Treasury will remove punitive tax rates of 55% and even as much as 70% which had effectively closed the secondary market in annuities.

Tom McPhail, pensions expert at Hargreaves Lansdown, said: “This is a welcome move but there are real risks there particularly for people with smaller pots where the costs of advice and transactions could outweigh the benefits.”

Minister for Pensions, Baroness Altmann, said: “Keeping an annuity will still be the right decision for the majority of people. But some were forced to buy annuities in the past that may not have been suitable for them.”