Assignment mechanism. Provided the annuity provider agrees, an annuity holder will be able to assign their annuity to a third-party buyer. The provider will continue to pay the income, but the payments will be received by the third party rather than the original annuity holder. In return for making the assignment, the original annuity holder will be able to use the funds received from the buyer to:

(Paragraph 3.3.)

The price offered to consumers would reflect the buyer's assessment of the annuity's actuarial value, transaction costs and a profit margin. The call for evidence notes that one factor which could affect the value of annuity payments is the risk of the provider defaulting and the paper speculates that there may be scope for Financial Services Compensation Scheme protection to apply following an assignment within its existing rules. (Paragraphs 2.13-2.14.)

Tax treatment. The current unauthorised payments charge that applies if a lifetime annuity is surrendered or assigned will be removed and individuals will be subject to income tax at their marginal rate on the payments they receive in return for an assignment (paragraph 3.2).

If an annuity holder opts for flexi-access drawdown, the amount transferred into the drawdown fund would not be subject to income tax and would not count towards the annual or lifetime allowance. The transfer payment would also not be eligible for pensions tax relief, nor would it trigger an entitlement to a pension commencement lump sum (PCLS). If the annuity holder opts for a flexible annuity, again no entitlement to tax relief would arise and the transfer would not trigger entitlement to a PCLS and would not count towards the annual allowance. However, the call for evidence appears to suggest it would count towards the annuity holder's lifetime allowance.

Scope of the assignment option. The government is proposing that assignment should only be permitted for annuities held in individual names. Accordingly, annuities bought by the trustees of an occupational pension scheme under a buy-in arrangement will not eligible for assignment. This is largely because the income payments are an asset of the scheme rather than the individual member. Joint life annuities may be eligible, and it will be up to providers to decide how they treat the interests of secondary beneficiaries (for example by requiring their consent to an assignment). (Paragraphs 2.25-2.27.)

The government is not inclined to permit original annuity providers to buy back annuities. The call for evidence cites the risk of instability for providers if they were to face liquidity demands in the event of large-scale buybacks. Moreover, in the context of consumer protection, annuity holders may falsely believe that if they want to take advantage of the new freedoms they will be obliged to do so through their own provider. Overall, the government believes the risks of allowing buyback outweigh the benefits, but seeks respondents' views. (Paragraphs 2.15-2.17.)

Money purchase annual allowance. The money purchase annual allowance will be triggered when an annuity holder assigns their annuity to a third party. The allowance will apply at the date the individual receives a cash lump sum or the date they first draw down on a flexi-access drawdown fund or receive the first payment under a flexible annuity. (Paragraphs 3.4-3.5.)

The government is considering whether new provision-of-information requirements may have to be enacted that will require registered pension schemes to tell members who have flexibly accessed their annuity about the money purchase annual allowance and other information (paragraphs 3.8-3.9).

For more about the money purchase annual allowance and the provision-of-information rules enacted under the Taxation of Pensions Act 2014, see Practice note, DC pension flexibility: overview: Anti-avoidance provisions: new money purchase annual allowance and Reporting information to HMRC.

Death benefits. The new rules on the tax treatment of death benefits will apply to funds received by annuity holders who have made an assignment. Broadly speaking, if an individual sets up a flexi-access drawdown fund using monies received from an assignment, any unused flexi-access drawdown fund left on their death can be passed to their beneficiaries free of tax if they die before reaching the age of 75. Equally, any payments under a flexible annuity to a beneficiary will be free of tax if the original annuity holder dies before age 75. If an individual receives a lump sum and any part of the lump sum is remaining on their death, this will form part of their estate. (Paragraphs 3.6-3.7.)

For background about the planned changes to the tax treatment of death benefits, see Practice note, DC pension flexibility: overview: Changes to tax treatment of death benefits.

Avoidance activity. Avoidance provisions may be enacted if these are deemed necessary, for example to trigger an unauthorised payments charge if an assignment is made between connected persons (paragraph 3.11).

Market participants. The government expects that institutional investors such as asset managers, pension funds and insurers will be attracted to the possibility of obtaining the right to annuity payments. Intermediaries may also be required to purchase annuities in bulk and repackage them for sale to end-investors. The primary advantage for investors is that they will gain a predictable fixed income stream. On the other hand, they will also assume the mortality risk, although the Treasury notes investors could mitigate this risk through steps such as individual underwriting. The government does not consider that annuity income bought on the secondary market would be an appropriate investment for retail investors given the complexity and difficulty in determining a fair price, so it proposes to restrict the activity to non-retail investors. (Paragraphs 2.7-2.11.)

Operational issues. A key practical issue identified by the Treasury is how an annuity provider will know when to stop making income payments, given that the provider will no longer be in regular contact with the original annuity holder. Possible methods for dealing with this issue could include imposing a requirement that the annuity holder makes arrangements to instruct the executor of their estate to notify the annuity provider at their death; setting a maximum age at which payments will cease in the absence of recent contact with the original annuity holder; or paying a nominal amount to the original holder on a semi-regular basis. (Paragraphs 2.19-2.21.)

Consumer protection. The government will work with the FCA to ensure appropriate safeguards are in place for annuity holders. The call for evidence considers several options, including:

(Paragraphs 4.8-4.14.)

The government will also consider whether current rules on financial promotions should be extended to cover those offering to buy annuity income streams from consumers (paragraph 4.15).

The government will work with the FCA to ensure providers do not charge an unfairly high price given that they effectively have a veto over an assignment by virtue of the fact their consent will be required. Steps for ensuring a competitive price could include requiring providers to offer a benchmark "selling price" or requiring individuals to obtain several quotes. (Paragraphs 4.16-4.18.)