Despite what you may have read, many people will still have to rely on the best UK annuity rates. While the government’s plans to abolish the requirement to use pension fund savings to purchase an annuity by age 75 at the latest is welcome news, the reality is that for the vast majority of retirees, nothing much will change. The new rules will require everyone to ensure that they have a minimum income in retirement which is sufficient to prevent them from becoming a burden on the State. Some 90% of annuities are purchased with pension funds of £50,000 or less, which would just about provide sufficient retirement income to prevent the individual from qualifying for State benefits.
Most people will therefore still be forced to purchase an annuity, hopfuly with high UK annuity rates. Those who will benefit from the changes are the wealthy who will be obliged to provide this minimum pension, but will be free to do what they like with the balance of their pension fund. The new rules will give pension savers the choice of having ‘capped drawdown’, which allows people to choose how much money to take annually from their pension fund throughout their retirement, or whether to draw any income at all. This is pretty much as income drawdown operates today. The alternative will allow people to take more than this ‘capped’ limit or even withdraw all the fund in cash, provided this will leave them with sufficient pension income that they will not themselves become a burden on the State. Savers will also have the option of leaving any unused pension fund monies to their children or other beneficiaries, albeit with a tax charge expected to be a hefty 55%.
