People who have already bought an annuity will be allowed to sell their contract under government plans to extend pensions freedom and choice to those already retired.

Chancellor George Osborne outlined the plans, originally suggested at the start of the year by pensions minister Steve Webb, in his Budget speech on 18 March.

People looking to sell their annuity contracts were previously hit with “punitive tax charges”. These will be scrapped from April 2016, the government said.

A Treasury consultation on the plans was released to coincide with the Budget announcement.

The government said at present people wanting to sell their annuity income to a willing buyer face a 55% tax charge or up to 70% in some cases.

Osborne said it would remove this “punitive” charge, so people are taxed only at their marginal rate.

The government also said the Financial Conduct Authority would be asked to introduce guidance and consumer protection measures to prevent mis-selling.

Labour leader Ed Milliband said advice on annuity sales needed to be put in place quickly to avoid a potential mis-selling scandal.

He said: “It is incredibly important that advice happens quickly.

“We have got rip off merchants [operating in this area]. We know it has happened before. In the 1980s, there was a dreadful mis-selling scandal.

“The Chancellor needs to get proper regulation in place on these issues.”

Documents also said sales to retail investors would not be permitted, but the government expected institutional investors to take an active role in the market.

Partnership chief executive Steve Groves said the Budget was good news for both consumers and annuity providers.

He said: “The creation of a well-regulated carefully-designed second-hand annuity market could mean that peoples annuities are now more flexible, still guaranteeing an income for life but also able to provide some extra cash when it is needed.

“It will provide those five million older people who have already taken an annuity with a greater degree of flexibility.”

He added: “Admittedly, the devil is in the detail and its now falls to the government and industry to create a safe market which provides real value to consumers.

“Extending the freedoms to past-annuitants and providing future generations with even more flexibility is simply not good enough unless it has a genuinely positive impact on their lives and this needs to be at the heart of the consultation.”

Double charges warning

Talbot and Muir head of technical support Claire Trott said: “People could be hit by double charges, once when they took them out and once when they sell them on.

“The will have to go through substantial underwriting to ensure that the purchaser gets value for money, they will be making the offers so will be leading the rates payable.

“It is in the purchaser’s interest to ensure they know enough about the annuitant’s lifestyle to be able to make an appropriate offer.”