Dangers lie ahead for consumers under plans for the re-selling of existing annuity contracts, a Sipps firm has warned.
The Government yesterday confirmed the proposal to extend the pension freedoms to around 5 million people who have already bought an annuity.
It came after much speculation last week that the policy would be part of this week's Budget – the final one before the General Election.
The Coalition said from April 2016, it would remove the restrictions on buying and selling existing annuities to allow pensioners to sell the income they receive from their annuity without unwinding the original annuity contract. Pensioners will then have the freedom to use that capital as they want.
A 55% - 70% tax charge will be removed, so people are taxed only at their marginal rate.

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Barnett Waddingham senior consultant Malcolm McLean said: "Early indications are there is every possibility of serious consumer detriment for which adequate guidance and protection arrangements need to be in place if this is to be avoided or at least minimised."
It is not clear what sort of market exists and what kind of deals consumers can expect from it for giving up their guaranteed income for life in return for a cash lump sum, he said.
He said: "There are also practical difficulties in assessing life expectancy in individual cases based on medical evidence and keeping track of actual lifespans for the purpose of continuing entitlement to the income stream from the annuity.
"It is far from clear at the moment whether those people who trade in their existing annuities for a cash settlement will be allowed to fall back on means-tested benefits, notably pension credit, later on.
"As ever, the devil is in the detail which hopefully will be made available as soon as possible."
Andrew Tully, pensions technical director at MGM Advantage, was critical of the idea, saying it was "full of pitfalls and is a potential minefield".
He said: "There are significant risks and two wrongs won't make a right. Being sold a poor value annuity and then being offered a poor value cash lump sum, which is taxable, will not address the issue of an inappropriate original sale."
Tom McPhail, head of pensions research at Hargreaves Lansdown, said: "The new pension freedoms are immensely popular with pension investors coming up to retirement, so it is hardly surprising the Government is looking at ways to extend them to those already in retirement too.
"Unlocking your annuity in exchange for cash is bound to appeal to some people who want either a lump sum now or the flexibility to dip into their pension pot at will.
"There are significant practical obstacles to overcome and this scheme may never get off the ground, however the consultation presents an opportunity to explore whether it is possible."
AXA Wealth today appeared to welcome the idea, saying: "bringing wider pension freedoms to all though seems a sensible step in offering greater flexibility for people to make a decision about how they use their own savings." The firm said it would be interested to see how people who were already retired could benefit from this further reforms.