Selling a poor performing annuity is to become a reality for pensioners who had to buy one because the retired prior to pension freedoms.
From April 2017, the government is establishing a market place that allows annuity holders to dump their contracts in return for cash.
But the market will not work for everyone.
For annuity holders who want to sell, here are some points to consider before cashing in.
- Not all annuity providers will allow holders to cash in – check if your contract allows you to do this
- Some annuities are not in the name of the person receiving the income – request a transfer into your name if this is the case or you cannot go to the market
- Will the money you get for a trade-in take the place of the annuity income -work out a sensible budget before you sell
- Do you have an annuity that offers an income to a spouse or dependent – if so, can they do without the annuity income if you trade it in? They will also have to agree to a sale
- Any annuity sale is likely to attract tax – this could jump you up a tax bracket and mean you do not get as much cash as you planned
- How old are you and are you in good health? Any annuity buyer needs to assess how long you are likely to live to make an offer and both these factors will influence the amount. The older and less healthy you are, the lower the offer is likely to be
- If you sell, you may incur some costs – get a quote so you know the cost of selling does not outweigh the benefits you expect
- Shop around if you decide to sell for the best deal
- Sit down and do a cost-benefit analysis – list what you will pay in costs to sell in one column and the money you will receive in the other. Estimate how long you are likely to live and work out the income from the sale price less costs over that time. Compare the figure with how much the annuity will pay over the same period.
Whichever figure is the highest is likely to be the best deal.
Remember you are unlikely to recoup what you paid for the annuity less the payments you have received.
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