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On 18th March 2016 the Government Scapped Plans to allow you to sell an existing annuity in payment
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Will the March 2015 Budget Statement give the green light to cash in your annuity?

Pensions Minister Steve Webb has made it known that he wants consumers who have previously acquired an annuity to have the ability to offer it in exchange for a cash lump sum. Remembering the Chancellor's remarkable pension declaration at the 2014 Budget Statement, he might very well use this opportunity to announce changes which many annuity customers might applaud.

You would need to be substantially lacking in cynicism if you think that the Government will certainly not utilize next week's budget statement to make announcements that they think will make individuals' vote for them at the May General Election !!

The most significant, most remarkable and certainly unforeseen modification revealed last year revolved around the removal of income caps on pension funds, permitting pensioners to 'drawdown as much or as little as they desire' from their pension fund. While these changes have been appreciated, lots of people who had already acquired an annuity or who were members of final salary schemes, felt that these brand-new 'freedoms' didn't encompass them. The Government have been looking at methods to address this.

In January 2015, Steve Webb went public with his plans to permit people to cash in their annuity for a one off lump amount, asserting that annuity clients around the country were 'urging' him to make this modification. Making such an announcement four months before the General Election implies that if he is genuine, he had better get a move on! With this in mind many people in the industry believe that the forthcoming budget statement will undoubtedly begin the process of making these changes legal.

It needs to be remembered that even if the announcement is made next week, it could still be several months, if not longer, before consumers get the possibility to take advantage of the reformations. It will be the good part of a year or more before the new bill is eventually given Royal Assent - the moment it becomes law.

Even if products do appear that allow you to cash in your annuity, it is doubtful whether the actual products provided will be as attractive as the initial idea. While we could be totally wrong we think the following are most likely to appear in a traded annuity market:

First we don't believe that there will be any responsibility on existing annuity companies to reimburse or return any part of the cash they initially received from the consumer when they initially bought their annuity. Having stated that, lots of existing annuity service providers might wish to do this to minimize their threat of the customer living longer than expected and thus minimizing their profit. The customer may also get more cash if, instead of using their existing annuity provider, they offer their regular income to a brand-new supplier who will could provide them with the largest possible cash lump sum.

Expecting the customer to live for 10 years, the company buying the annuity may offer the customer say £40,000 in exchange for the annuity income. The consumer is offering up a possible £10,000 in the future for a guaranteed £40,000 now.

This might imply that if the customer passes away after 2 years, the company who bought the annuity income will be substantially out of pocket - as they would no longer be able to receive the annuity income. In result they will have paid 8 years annuity income in advance, but received just  2 years earnings in return.

If the consumer survives for 15 years the business will have actually got an even better deal, as there may not be any responsibility on the company to share this added income with the original consumer.

In all agreements that are based on a client's life expectancy there will be winners and losers, however who the winners are will not be understood until the consumer passes away!

The lump sum the client receives when they cash in their annuity will be subject to income tax. We cannot see how this will not be the case.

In the example above, a consumer offering their annuity for £40,000 will have the sum additionally decreased by tax. Based on 2014/ 2015 tax rates we currently believe that a client aged under 65 would have practically £6,000 to pay in tax *. This amount would be further increased if the client has other earnings.

We need to stress that the presumptions above are pure speculation, however we do not believe there are many who would disagree with us at this stage. Product providers will certainly need to work hard to provide appealing contracts that clients will want to buy.

Lastly as a client focused business, our primary objective is that clients accomplish results that are ideal for them. It is therefore important that we continue to make you mindful that while an instant lump sum amount may be extremely beneficial and attractive, once it is gone that is it. An annuity on the other hand will continue to pay you income for the whole of your life, even if you pass away years after your anticipated life expectancy - we hope you do.

Important : Your annuity is designed to provide you with a guaranteed income in retirement. This income will continue to be paid for as long as you live. If you sell your annuity you may not have a sufficient level of income to sustain your lifestyle in retirement. It is likely to be the case that the value of the lump sum you receive will be less than you would have received if you had kept your annuity and died in line with your life expectancy at the time you took out your annuity.
Drawdown Testimonials

”Considerate, conscientious and confidence-inspiring”

From the start Bob and his team let us know that they understood our nervousness about deciding what to do with our pension fund.  We were never put under any pressure to make a decision; on the contrary,  the team were considerate of our need to take our time to think about what we were doing and be satisfied that we were doing the right thing.  It didn’t seem to matter how many questions we threw at them – they always replied promptly and in as much detail as necessary and they were always ready to help further.

Indeed, we were very impressed by just how conscientious they are.   We received emails and paperwork accompanying every step we took and it would be no exaggeration to say that no efforts were spared to make sure that everything was documented down to the last detail.

Bob and his team inspire confidence and do so in a way that is friendly and familiar.  We’re confident that we’ve found someone who understands what’s going on in the pension industry and is able to help us make our own decisions about how best to invest our fund.   And we’re happy that this person is someone who’s always very approachable  and ready  to do what he can to help his clients. 

Mr V. S. - Prague
Drawdown Customer - January 2015
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Please Note : Some of the ideas and concepts discussed on this website are not yet law and may not become law. There is still the possibility that some or all of these changes could be altered or cancelled as the changes announced by the Chancellor of the Exchequer have to be passed by Parliament. We cannot be held liable for any action taken by a customer in anticipation of the proposed legislation becoming law.
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