But Osborne says ‘no Budget giveaways’ before election
Chancellor George Osborne is expected to announce an extension to his existing pension reforms in the 2015 Budget this Wednesday.
He said that he wanted to allow pensioners who have already bought an annuity to sell it on the open market from April 2016, which would affect about five million people.
Currently pensioners who want to sell their annuity face a 55 per cent tax charge, which rises to 70 per cent in some cases. The government said it would remove this charge, so people are taxed only at a marginal rate.
This change would be in addition to reforms introduced by the government in last year's Budget which enabled pension holders to cash in all or part of their defined contribution pot when they retire instead of being forced to buy an annuity that ensures an income for life.
Osborne said: “There are five million pensioners who are locked into annuities they have already bought. They should have the same freedoms as we have given everyone else.
“For most people, sticking with that annuity is the right thing to do. But there will be some who would welcome being able to draw on that money as they choose - the same freedom we are offering those approaching retirement in April this year.
“So I am going to change the law to let that happen, and make sure we have the right guidance in place.”
Responding to questions on the BBC’s Andrew Marr show about further reforms that might appear in his Budget speech on Wednesday, the chancellor said: "This Budget is all about securing a truly national recovery from building a Northern powerhouse, connecting up other regions of our country, committing to long-term plans that support science and high-speed transport... so no giveaways, no gimmicks a Budget for the long term... Everything we do in this Budget has to be paid for."
In response to the chancellors plans on pension reforms, Joanne Segars, chief executive of the National Association of Pension Funds, said: "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 [annuities] market is created.
"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; and also consider a prescribed process for introducing buyers and sellers to avoid excess costs, which would inevitably be carried by the consumer.”
She said that the reforms would mean that the Pension Wise advice service would also have to be equipped to provide thorough guidance on this topic.
"This suggested reform should not distract us from or undermine the Freedom and Choice reforms which are due to begin imminently [April]. The government will need to make sure this doesn't divert focus or resource from Pension Wise, damage the broader annuity market or slow down the development of a much-needed market in retirement solutions."