Can I cash in my annuity?
annuity_cash

Q. I thought that the Government had announced that annuities for existing pensioners could be cashed in if you wanted to from April 2017. But having looked on the Government's website, it now states that nothing is going to change. Can you advise please?

A. Kate Smith, Head of Pensions at Aegon says:

I’m afraid the Government changed its mind last year and decided against allowing pensioners to cash in their annuities. Originally it had wanted to extend the ‘pension freedoms’ enjoyed by those over age 55 to those who had previously brought annuities. But following a wide-reaching consultation, the Government backtracked, as it was concerned that too many people might be lured into selling their annuities for a cash sum which may be poor value, or fall victim to scammers.

Pension scams to watch out for

 Some providers let you cash in annuities worth less than £10k

Some providers let you cash in annuities worth less than £10k

There is a glimmer of hope though. It is possible to cash in your annuity but only if it’s worth less than £10,000, and only if your provider allows you to do this. So if your annuity is very small, you could ask if this is an option and how much you would get in return. The valuation would take into account factors such as your age and health, as well as ‘market’ factors. Any amount paid out would be subject to income tax.

  • Annuities are such a popular topic, we've put together this guide to help you understand them and the options available to you:

What is an annuity?

An annuity is a type of insurance product which pays a guaranteed regular retirement income normally for the rest of your life. A ‘life’ annuity will continue to be paid however long you live, whether that’s five years or 30 years. It’s also possible to buy ‘fixed term’ annuities which pay an income for a pre-agreed number of years, commonly five or 10 years.

Income tax is payable on annuity income. Buying an annuity is normally an irreversible decision. An annuity is just one of several options to turn your pension savings into a retirement income.

 Buy an annuity that fits your circumstances

Buy an annuity that fits your circumstances

What annuity can I buy?

There are many different types of annuity to choose from, so you are able to select one which fits your personal circumstances, your health and attitude to risk.

  • You can buy a single life or joint life annuity. A single life annuity is paid for the rest of your life, so the annuity dies with you. If you wish to make provision for your partner or another beneficiary in the event of your death you can buy a joint life annuity, where payments continue to be paid, normally at a lower level, to your nominated beneficiary for the remainder of their life
  • In addition, it’s possible to buy additional protection which guarantees that your annuity will continue to be paid for a fixed term, even if you die earlier
  • You have the option of buying a level annuity where the same amount is paid each month. It’s possible to protect your annuity income from the erosive effects of inflation by selecting an annuity which increases each year
  • If you have a medical condition, are overweight or smoke you may be able to get a higher income by buying an impaired life or enhanced annuity
  • Other types of annuities include fixed term, or short-term, investment linked and capital protected
  • Selecting an annuity can be a difficult decision, so it’s best to get help from a financial adviser, or speak to PensionWise

How PensionWise can help you make retirement decisions

Can I buy an annuity with cash?

Annuities are normally bought from your pension savings held with a pension company or scheme. It is possible to buy an ‘immediate life annuity’ from non-pension savings, providing a retirement income from age 55.

 It's important to shop around for your annuity provider

It's important to shop around for your annuity provider

Where can I buy an annuity?

Specialised insurance companies sell annuities. Your existing pension company may also offer annuities, but may not offer you the best deal. You have the right to shop around and this will usually lead to a higher retirement income. You also need to think about the type of annuity which best suits your personal circumstances; for example, not all annuity providers offer enhanced or impaired life annuities.   

If your pension pot has built in guaranteed annuity rates it will be hard to match, so find out about these before making any decision.   

What can I do with my pension pot?

Can I sell my annuity in the UK?

It is not possible to sell your annuity. Buying an annuity is an irreversible decision, unless the value is less than £10,000. Originally the Government had wanted to extend the ‘pension freedoms’ enjoyed by the over 55s to those who had previously brought annuities. But following a wide-reaching consultation, the Government backtracked, as it was concerned that too many people might be lured into selling their annuities for a cash sum which may be poor value, or fall victim to scammers.

 Ask us a money question!

Ask us a money question!

Ask Yours a money question

We have a team of experts waiting to answer your questions on anything finance-related, whether it’s the best way to save for your grandchildren, paying less tax or juggling finances in retirement.

Email your questions to yours@bauermedia.co.uk or fill out the form below and we'll answer as many as possible.

Name *
Name