17% of existing annuity holders would consider ‘cashing in’

24 Apr, 2015

With the recent Budget having announced plans to consult on allowing UK retirees who have already purchased an annuity to cash-in their policy, new research has revealed that a large proportion of existing annuity holders will consider selling their guaranteed incomes for a cash lump sum.

The Tilney Bestinvest survey, carried out by YouGov amongst over 1,800 GB adults who had already purchased an annuity, found that 17% of respondents agreed with the statement ‘I would personally consider selling the annuity I have already purchased for a cash lump sum’.* Of the remaining respondents, 33% said they ‘would not personally consider selling the annuity I have already purchased for a cash lump sum’, and 50% said they didn’t know.

A spokesman for Tilney Bestinvest said: “While this announcement certainly grabbed the headlines and is likely to be popular with some retirees for whom “annuities” has become an almost dirty word as a result of the depressed gilt-yields that have driven annuity rates, the practicalities of implementing the policy are far from straightforward. Indeed, those looking to receive their original annuity investment minus what they have already taken from their annuity will likely be severely disappointed for several reasons.

“It has been announced that insurance companies who currently provide annuities will not be able to enter the market, and therefore the function of selling annuities will be carried out by third party brokers. This cost, coupled with the fees involved in medical underwriting which will be required to carry out the encashment, means that the overall fees for selling an annuity are likely to be substantial. These are on top of the tax which would need to be paid when receiving the cash, payable at your highest tax rate as well as any financial advice taken.

“As it is more likely that those with smaller annuity pots will be the ones most tempted into selling them due to the low levels of income received, the combination of these costs will have a considerable impact, perhaps even prohibiting the sale.