From April next year, there will be no need to rely on getting the best pension annuity rates. At least, not for some people. The government has confirmed that it intends scrapping compulsory annuitisation. The financial secretary to the Treasury, Mark Hoban, said the “simplified” rules, to be introduced in April next year, will give investors the freedom to choose between taking their pension fund assets as a lump sum or as a form of drawdown income. The chancellor had said in June’s budget that he wanted to raise the age at which someone had to buy an annuity from 75 to 77 from April next year but the consultation document just published suggests this plan will now be scrapped.
The new proposals introduce a two-track solution where investors can choose between capped or flexible income drawdown schemes. Under the capped rule, investors will be able to choose how much to draw down annually from their pension fund throughout their retirement, subject to a maximum, or whether to take any income at all. Under the flexible model, if an investor satisfies a minimum income requirement, then they will be able to draw down unlimited sums from their pension fund. The removal of the age-75 limit will mean that people wanting to buy an annuity can time their annuity purchase to maximise the income they get, rather than being forced into buying when pension annuity rates are low, and they have no choice. Tom McPhail, pensions specialist with Hargreaves Lansdown, welcomed the proposal, saying that it is more radical than he expected, effectively meaning that no one has to buy an annuity, ever.
However, he added, people with smaller pension funds might not satisfy the minimum income requirement, so will have to buy an annuity anyway, hopefully with the best annuity rates. This will probably effect many people as the vast majority of annuities are purchased with relatively small funds of £50,000 or less. Further, this is a very positive step and will achieve the government’s intentions of re-invigorating the pensions savings market.
