Britain to allow people to cash in annuities from April 2017

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By Huw Jones and Carolyn Cohn

LONDON, April 21 (Reuters) - Britain set out on Thursday how people can sell their pension annuities on a new secondary market from April 2017 in the next leg of a shake-up in retirement provision.

In the past, people have put money into a pot to buy an annuity on retirement, which pays out a regular income until death.

Britain has already ended an effective requirement to buy an annuity in the first place.

Finance minister George Osborne had previously announced the intention to create a secondary market for 6 million annuities already bought and paying out.

On Thursday Osborne published the draft law that will enable this to happen, saying buyers and brokers will have to be authorised by the Financial Conduct Authority (FCA).

Britain's tax authorities said 300,000 people could choose to take up the option of selling their annuities.

Separately, the FCA issued a public consultation on rules it intends to use to regulate the new secondary market and protect sellers of annuities from scams.

The FCA said that technically it was already possible to sell annuities but that taxes are too punitive. This, however, will change from April next year.

The FCA said the tax changes would probably result in the market growing significantly and pose risks to consumers.

"We have set out proposed rules and guidance today that will help ensure that consumers have an appropriate degree of protection should they decide to sell their annuity income," FCA director of strategy and competition, Christopher Woolard, said.

The FCA has proposed that brokers must set out their charges up front and agree them with the consumer selling the annuity, rather than being paid by commission from firms acting as buyers.

Buyers of the annuities were likely to be insurers or investment firms attracted by the regular income stream, said Tom McPhail, head of retirement policy at investment supermarket Hargreaves Lansdown (LSE: HL.L - news) .

"It (Other OTC: ITGL - news) 's good news that anyone operating in this market is going to have to be regulated," he said, adding that those selling their annuities would need to shop around for the best price to avoid being ripped off.

The sale of an annuity would come under the Financial Services Compensation Scheme, meaning a customer would have financial redress when rules are breached. (Reporting by Huw Jones, editing by Carolyn Cohn and Ed Osmond)