More than five million pensioners who were forced to buy annuities will, from April 2017, be able to sell those guaranteed incomes in return for a cash lump sum, the Treasury confirmed this week – although they are likely to have to pay hundreds of pounds in fees to advisers.

The move, which will create a “secondary market” for annuities, is seen as the next big part of the government’s landmark pension freedoms announced by George Osborne in 2014.

In the past, most workers had to swap the pension pot they had built up for an annuity, which then paid a monthly sum until death. But annuities were regarded as poor value for money – particularly for those with medical problems.

In April the government did away with the requirement to buy one. This week it confirmed that the tax restrictions for people looking to sell an existing annuity will be removed in 2017 which, in effect, gives pensioners the ability to sell them on for cash.

The government estimates there are around five million annuity holders receiving total income of £13.3bn a year.

Someone wanting to sell their annuity currently faces a tax bill of up to 70%. But after 6 April 2017 tax will be at their marginal rate – 20% or 40% – which critics say will raise a hefty sum for the Treasury.

It is thought the move will be particularly beneficial for those with existing secure incomes who want to swap small annuity payments for a single lump sum. However, most are likely to be disappointed by the small sums they will be offered. For example, MGM Advantage suggests that a woman who bought an annuity two years ago with her £60,000 savings might get only £30,000. Advisers Portal Financial reckon a 68-year-old woman who used her £100,000 to buy an annuity three years ago would be offered around £69,000 today.

Those with large annuities will be required to obtain financial advice before being able to sell. The exact threshold is to be determined next year, with the cost of that advice likely to be borne by the seller. Most independent financial advisers charge upwards of £150 an hour.

Tom McPhail, pension expert at Hargreaves Lansdown, warns that “selling a guaranteed income will not be right for many people”, while the consumer group Which? says that it is “vital” consumers are properly protected. “Questions remain over how this will work in practice because, for most people, selling their annuity won’t be the best decision,” it warns.

Valuing annuities for sale is complex because the annuity will only pay out until the original seller dies – not until the death of the new owner.

Bob Scott, of pensions consultants Lane Clark & Peacock, neatly identifies the problem: “There’s a risk that if someone wants to buy your annuity, you probably shouldn’t sell. Equally, if someone wants to sell their annuity, should you be buying it?”

David Smith at financial advisers Tilney Bestinvest warns that the low price a consumer receives may come as a shock. “Bearing in mind the potential tax charges if taken as a lump sum, the final offer for their annuity could make the consumer’s arduous journey up to this point completely worthless.”

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