Should You Sell Your Annuity?

by Rob Phillips, CPA

Many people who are interested in selling their pension annuity all have the same questions and concerns. The question is should you sell your annuity? And if so what do you need to know.

Second Hand Annuity Market

In the UK, from April 2017 about five million people with existing annuity incomes will be able to sell their annuity in exchange for a taxable lump sum of cash. The reason for this is so that pension freedom is expansive for those that have already bought an annuity can access pension flexibly.

Can Everyone Sell Their Annuity?

For most people you will be able to sell your annuity as long as it is obviously owned by you and your is name on it. For those with final salary or public sector pensions, you will not be able to extend your annuity for sale.

Does It Cost Anything to Sell?

Another question people have is whether or not you will have to pay anything upfront to sell your annuity. The industry is still in the process of working out exactly how the overall market will work and if there will be charges. There is likely hood of there being significant costs involved in selling the annuity, especially as many people will be interested in this, advice will need to be given to customers. Services such as, costs for advice, health checks, admin costs to the original seller and profit margin for the buyer. With these required services, potential costs could be viable.

Who Will Buy Annuities? 

Any financial organisation can purchase an annuity and can offer prices however the market will be heavy regulated due to the potential risk of fraud and scams that could occur.

There are many companies that are interested in purchasing annuities and can offer reasonable costs for your annuity.

If you receive an enhanced annuity based on ill Heath, will you receive more?

If you currently receive enhanced annuity as you’re of ill health you may question if you will receive more money. The answer is no, the buyer will request for a medical check and medical records from your GP/doctor, this will allow them to estimate how long you will live. Furthermore if your health has been getting worse since you bought your annuity this will mean you will be offered a lower amount. The income will be received for your lifetime by the buyer.

If you’re in your 80s is it worth selling?

The buyer will estimate how long you have to live based on medical checks and reports. In these cases it is unlikely you will receive cash from your annuity.

Do you need Financial Advice before You Sell? 

Because of the concern with potential scams and fraud it is important to seek financial advice to ensure customers get the best value for money. Advice will need to be given prior to trading and there will be people available to do this however many advisers have stated that they won’t advice in this particular market.

Are you tired of consistent monthly payments? Are you in need of a larger amount of money in a short-term period? Are you questioning yourself, “Should I sell my annuity?” If that’s the case, your answer is an absolute yes.

Selling annuities is a feasible choice for individuals who need cash ASAP. Whether you have a debt to pay off, an investment to pursue or any other situation, you can sell annuity payments instead of going through the hassle of applying for a bank loan. There are buyers that can purchase your annuities and give you cash in hand in a couple of days, weeks or even months.

A structured settlement is a regular payment administered by insurance companies on a monthly or yearly basis for a set period of time. It is usually tax-free. You can sell annuities either partially or as a whole depending on how much cash you need and the amount that the insurance company owes you.

You may be wondering, “How much will I get when I sell my annuity?” The truth is there is no predetermined amount or percentage for that. Many factors determine the value of your annuity and your buyer puts all of them into account. Some of the factors include:

  • Financial stability of the payer
  • Balance remaining
  • Any balloon payments due
  • The time left

Since the purchaser assumes a risk, the buyout is never a 1:1. This means that when you sell annuity payment, the amount you receive will be lower than the balance remaining. Why? You ask. Well, the reason is simple, inflation. The economy is not always predictable. It could take a hit with time. Hence, the buyer will opt to give you less than you deserve so that in case inflation occurs, he doesn’t incur a major loss.

Selling annuities is a major decision that one has to make. But before you decide to get cash for structured settlement, there are considerations to make. These include:

  1. The money’s importance.

Evaluate whether the need to have the money instantly is a must. This will save you from any chances of squandering the cash you receive.

2. Consult an attorney/accountant

An expert such as an attorney will help you determine whether the company that wants to buy your annuities is trustworthy and will give you a reasonable quote.

3. The worth of the annuity

Try to come up with an estimate value that you wish to get after selling annuities. After that, find a company that will give you such a price or higher or not so much lower than you expected.

What are the advantages of selling annuities?

Selling annuities comes along with many benefits. Some of the advantages are:

  1. You get all your money in one lump sum.
  2. You can easily pay off a debt and you no longer have to worry about it.
  3. You can take care of your child’s education at once.
  4. You can decide to retire earlier knowing that you have the cash you need to run your daily life.

To conclude, if you are in need of a lump sum money and you have annuities, consider selling them to a qualified and experienced buyer that can offer you top dollar for your annuity.

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