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Turcan Connell welcomes proposals to remove compulsory annuitisation age

Treasury financial secretary Mark Hoban today launched a consultation on removing compulsory annuitisation at age 75.

The proposals unveiled today will allow people who do not want to purchase an annuity to take capped drawdown - the equivalent of an unsecured pension extended beyond the age of 75 - for the whole of their retirement.
 
Mr Hoban also proposed flexible drawdown. This will allow individuals to draw down unlimited amounts from their pension pot, provided that they have secured a minimum income, in order to prevent them from running out of savings and becoming reliant upon the state.
 
The consultation, which will close on September 10, will look at what the minimum income level should be over the next eight weeks.

The consultation paper states that individuals who are already in ASP will be able to benefit from the new flexibilities. This contradicts advice given by the Treasury earlier this month which suggested this would not be the case.
 
Bob Hair, Turcan Connell’s Head of Financial Planning, said:

“The ‘age 75’ rule was laid down in 1976 when the average life expectancy of a healthy 65 year old was 13 years, whereas now it is 21 years for men and 24 years for women. Annuities were relatively good value for money, the concept of income drawdown did not exist and investment options were fairly limited. The majority of those who could expect a pension in addition to that provided by the State would receive it by virtue of a lengthy period of service in employment, or after a lifetime of saving if self-employed. Employers and large insurance companies were highly regarded and trusted to underwrite the guarantees required in the provision of pensions.
 
“The world has of course moved on since 1976. Today, we have a highly mobile labour market, and much greater acceptance that pension saving is fast becoming the individual’s responsibility. The market has evolved enormously and in particular in the last 20 years or so as the range of investment opportunities for long term savings has exploded, and the plethora of choice in providing a retirement income has also been greatly enhanced. Yet until now, it has not been possible to fully benefit from that flexibility and choice beyond age 75, and a lifetime of pension saving for many has resulted in the loss of most or all of their funds to tax or the “annuity pool” on their death. This ultimately means a lot of people just don’t bother starting a pension at all.
 
“While details are still to be confirmed, today’s announcement and consultation paper suggests that individuals will at the very least have greater control on the timing of their annuity purchase and for others who prefer not to annuitise at all there will be greater investment flexibility; and control over the level of income and the legacy that can be left for the next generation. That has got to be a good thing, but taking advice from a suitably qualified pensions adviser will be essential to get the most appropriate planning in place.”
 
There has been a substantial effort from the financial services industry to lobby for such a change to the grossly unfair system which has been in place, and at Turcan Connell we expressed our own views most recently on 29th September 2009 through our annual Conference at The Royal College of Physicians entitled “The Future of Pensions” when The Rt. Hon. Theresa May MP attended and presented as our keynote speaker. It is fair to say that there will be a brighter “Future of Pensions” as a result of these changes.

To read comments from experts on annuities and inheritance tax reforms at TheWealthNet, which features comment from Bob Hair, please click here. Please note that a subscription is required to view content on www.thewealthnet.com.

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