Retirement

Expats Win Right To Cash In Duff Annuities

Chancellor George Osborne’s Budget 2015 has extended the freedom for pensioners to cash in their annuities to expats as well.

From April 2016, any retirement saver who has bought an annuity has the right to buy-out their contract regardless of where they live.

In return, they can pick up a cash lump sum based on the value of their annuity without paying stiff tax penalties to get out of the deal.

The measure adds to the forthcoming flexible access pension rules that start from April 6, 2015.

These new rules let UK retirement savers aged over 55 take cash from their pension funds when they wish.

The first 25% of any withdrawal is tax free, while income tax is paid on the rest.

Pension freedom

The decision to expand pension freedoms to cover annuities came after financial industry criticism that millions of pensioners faced problems paying their bills on low incomes returned from their investments.

Many had no choice but to invest in annuities before the current government changed pension rules.

Annuity rates have nosedived since the recession – average returns are around 3% a year compared with rates of double that amount available only a few years ago.

The precise way annuity buy back will work is still to be decided. The government will issue a consultation document laying out their aims and asking for industry responses within a few weeks.

The intention seems to set up a market to allow institutional investment firms to buy existing annuities in exchange for cash.

Financial advisers are warning the cash for annuities move could create more money problems than the move solves for low income pensioners.

New HMRC manual

Anthony Thomas, chairman of The Low Incomes Tax Reform Group (LITRG), said: “The news is good for anyone with a poor paying annuity, but people will have to weigh up the amount of tax they may have to pay to get their money and then the effect taking the cash will have on any means-tested benefits.

“Taking cash out of an annuity won’t suit everyone, but it’s another option for rearranging financial affairs to give a better income in retirement.”

Meanwhile, the raft of new pension measures affecting UK and offshore retirement savers is so vast and confusing, HM Revenue & Customs (HMRC) has announced that a new manual explaining the changes is about to be published.

The first draft of the Pensions Tax Manual will be available in the spring.

HMRC manuals are the tax authority’s interpretation of the law and give guidance to tax inspectors on how to handle cases. However, the manual has no force in law and any decisions based on the contents can be challenged by taxpayers.

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