Pensions  

HMRC criticised for annuity resale inquiry

HMRC criticised for annuity resale inquiry

HM Revenue & Customs has been accused of failing to understand the pensions sector, as it seeks to put in place tax rules for the incoming annuity resale market.

The Government is seeking to extend its liberalisation of the pension market to those who have already bought an annuity by creating an open market in their resale.

Intelligent Pensions’ technical director David Trenner said the opening question in HMRC’s consultation paper on creating a secondary annuity market betrays a lack of understanding of the issues, and throws the quality of the inquiry into doubt.

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The first question asks whether “old code” annuities still in payment should be eligible for resale. But Mr Trenner said this was a marginal and essentially “irrelevant” issue, as an “old code” annuity must have been issued before April 1980.

That would mean a pensioner who began receiving annuity payments in 1980 aged 60 would now be aged 96. He said that it was highly unlikely that anyone that age would be engaged enough to think of selling their policy. And if they were engaged enough, they would regard their annuity as extremely good value.

He added that beginning an inquiry on annuity resale with that question was like beginning a football inquiry by asking how wild animals should be prevented from getting on the pitch. “It’s a side issue,” he said.

Following the introduction of pension freedom legislation in April 2015, which essentially removed the need for people to buy an annuity, the Government is seeking to extend the liberalisation to those who have already bought an annuity by creating an open market in their resale.

But Mr Trenner was sceptical about the creation of a secondary market for annuities.

He said: “Instead of getting people to sell bad annuities they never should have bought, you should stop companies from selling bad annuities they never should have sold.”

HMRC released the consultation document, Creating a secondary annuity market: tax framework, on 20 April. Comments close 15 June.

Responding to Mr Trenner’s comments, an HMRC spokesperson said: “The Government believes people who’ve worked hard all their lives should have the freedom to decide how to use their hard-earned savings. That’s why we’re extending these successful freedoms to people with annuities from April 2017, an approach supported by consumer groups and industry.

james.fernyhough@ft.com