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Beverly Chandler

Hargreaves Lansdown comments on secondary annuity market tax consultation

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Tom McPhail, Head of Retirement Policy at Hargreaves Lansdown has commented on the HMRC tax consultation on the secondary annuity market. The consultation is a further step towards the launch of this market on 6 April 2017, from which date pension investors who have previously bought an annuity will be allowed to sell their guaranteed income in exchange for a lump sum. 

McPhail comments: “In the regulatory impact assessment accompanying the document, HMRC has indicated a government expectation that 300,000 people will choose to take up this option. There are around six million annuities in payment, held by around five million retired investors.
 
“As previously stated in the Budget, the Treasury expects a tax windfall of GBP960 million in the first two years of the new secondary annuity market (April 2017 to April 2019), though it also predicts a revenue loss in subsequent years meaning a net gain to the Chancellor of GBP665 million.
 
“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 by their insurance company, for some of them possibly not for the first time.
 
“There are no great surprises in the tax consultation document; we’re now waiting on the FCA to publish their regulatory plans for how the interaction between buyers, sellers and intermediaries will operate. Everything has to be put in place for the market to go live in April 2017.”

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