300,000 people expected to sell retirement annuity once changes come into force
Around 300,000 people are expected to sell their retirement annuity after a further pensions shake-up comes into force next year, HM Revenue and Customs (HMRC) documents show.
From April 2017, people who already have an annuity - which gives pensioners a guaranteed income - can sell it on for a lump sum.
The reforms will build on the pension freedoms introduced in 2015, which mean people aged 55 and over no longer have to use their pension pot to buy an annuity and instead they can have more choice over how they use their money. The 2015 reforms did not affect people who had already retired and had bought an annuity.
A tax consultation document published by HMRC on the plans for the secondary annuity market said: "It is estimated that up to five million individuals receive payments under pension annuities and that some 300,000 of these individuals will choose to sell their annuity."
As previously stated in the Budget, the Government expects a tax windfall of £960 million in the first two years of the new secondary annuity market, but it also predicts a revenue loss for the two subsequent years - meaning a net gain to the Exchequer of £665 million.
Tom McPhail, head of retirement policy at Hargreaves Lansdown, said: "This is potentially a double win for the Government, giving annuity holders the chance to exercise more control over their savings, and raising extra revenue in the process.
"Our own research indicates a healthy appetite for this market, though that will in the end depend on what kind of price investors are offered in exchange for their annuity income.
"There are still unanswered questions around the regulation of the market and how consumer protection could work; we need to make sure investors don't end up getting ripped off."
Annuities have been controversial in recent years due to plunging rates and concerns that people were not shopping around to get the best deals, although they do act as a guarantee for pensioners that they will not out-live their savings.
Recent analysis from website Moneyfacts showed that a verage retirement incomes for people taking an annuity have plunged by nearly 10% since the new pension freedoms were launched. Moneyfacts previously said the new pension freedoms "have proved counter-productive for retirees reluctant to take any risks with their pension pots as annuity providers have struggled to offer competitive pricing given the more limited business volumes at stake".
Gareth Shaw, head of consumer affairs at Saga Investment Services, said: "There are thousands of over-50s who were forced to buy annuities with small pension savings, and are receiving such low incomes that they make absolutely no difference to their retirement earnings. It's not surprising to see that the Government expects to see such high levels of interest in annuity selling.
"Research carried out by Saga found that 58% of people who wanted to sell their annuity were receiving such a small income they could do nothing meaningful with it.
"Now the Government must ensure that the large numbers of people looking to sell their annuity get a good deal, and have the tools and information to be able to understand what's available - and what they're giving up."