The Government wants to foster a new culture of saving in the UK with compulsory annuity purchase changes. The Treasury secretary, Mark Hoban, has suggested new rules supposedly helping the vast majority of people who buy an annuity at retirement for their income secure the best possible deal? Or has he put an end to the requirement to have to buy an annuity at 75, giving the tiny minority who want to leave their pension fund invested at 75 the ability to do so?
There are merits in both, but the Government aren’t addressing the first option, but the second, aimed at a wealthy minority. Currently the only option at 75 other than buying an annuity is an alternatively secured pension (or ASP), which attracts 82% tax on death. That will now be replaced with a form of capped drawdown, with an annual withdrawal limit, aa well as uncapped drawdown for those with a certain income level. It certainly isn’t pensions simplification. No, we’re going to see more confusion and chaos. The Treasury’s own figures show that just 5,000 people aged between 55 and 75 will be affected by this proposed change, that’s just 1% of retirees, with the average UK pension fund at retirement worth less than £30,000.
Surely the Government should turn its attention to the 99% of retirees not affected by all this, for whom buying an annuity is the only viable option. It’s estimated that less than 40% of retirees actually use the open market option (OMO) to shop around for the best annuity rates at retirement, staying instead with their existing pension provider. For most this means waving goodbye to thousands of pounds of vital income. However, the Government has not yet deemed this massive issue worthy of the scrutiny afforded to the age 75 annuity purchase issue. Realistically, making the OMO the default option at retirement is needed if the pension system is going to work fairly for the vast majority of retirees who still rely on buying an annuity.
