Chancellor George Osborne has announced that the government will extend its pension freedoms to the around five million people who have already bought an annuity.
Under the change, the government will remove restrictions on buying or selling existing annuities to allow pensioners to sell the income they receive from their annuity without unwinding the original annuity contract.
HM Treasury explained pensioners would have the freedom to use the capital as they want and they could "either take it as a lump sum, or place it into drawdown to use the proceeds more gradually".
Osborne said: "There are five million pensioners who are locked into annuities they have already bought. They should have the same freedoms as we have given everyone else.
"For most people, sticking with that annuity is the right thing to do. But there will be some who would welcome being able to draw on that money as they choose - the same freedom we are offering those approaching retirement in April this year."
The government said it would work with the Financial Conduct Authority (FCA) to introduce guidance to consumers and would also launch a consultation on 18 March on the measures needed to establish a market to sell and buy annuities.
Further details of the reforms will be included in this year's budget statement on Wednesday 18 March.
Pension reform was proposed under last year's budget and with effect from 6 April 2015, people with defined contribution pension schemes will be able to access their retirement savings when they reach 55, subject to tax charges.
Nick Salter, President of the IFoA, said: "Allowing existing pensioners to surrender their annuities will not be straightforward for pensioners, insurers or regulators, and so we welcome the plan for the FCA to consult on these proposals. It is critical that the wide-ranging implications of a secondary annuity market are fully understood.
"The development of the secondary annuity market is likely to be challenging for insurers, coming at a time of significant change in the insurance and pensions industries."
Salter said insurers would need to design appropriate medical underwriting when determining the lump sum offered in exchange for an annuity, as those in ill health might be more likely to give up their annuities than those in good health.
Joanne Segars, chief executive at the National Association of Pension Funds, said: "It's clear to see how this fits with this government's agenda for pensions but what is less clear is how savers will be protected."
Segars said a consultation would be essential and would need to look at how the buy-back price of an annuity would be calculated so "people selling their annuity could be assured of good value".
Tom McPhail, head of pensions research at Hargreaves Lansdown, said since pension freedoms were "immensely popular" with those coming up to retirement, it was "hardly surprising" that the government had extended the freedoms to those already in retirement.
He added: "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."
Malcolm McLean, senior consultant at Barnett Waddingham, said: "While this will doubtless be welcomed by many of those people who feel they have not received a good deal from their earlier purchase of an annuity, it is difficult to avoid the impression that the timing of the announcement so close to the general election owes more to political expediency than anything else.
"As ever, the devil is in the detail which hopefully will be made available as soon as possible."
