The ABI are now saying that we should increase the age for annuity purchase in UK to 80. Higher annuity rates will be one result simply because of the older age. These proposals are set out in a recent paper from the Association of British Insurers (ABI). This paper argues that the current age 75 rule is something of a barrier to improving retirees’ options for taking income and retirement based on average life expectancy assumptions made over 50 years ago. It said today’s increased longevity and the trend towards ever increasing life expectancy should be factored into when retired people have to take out an annuity.
When the present rules were made, male and female life expectancies stood at roughly 77 and 79 respectively. Today, men’s average life expectancy has reached 86 and women’s is now 88, which the paper suggests make existing assumptions somewhat ‘outdated and unsuited’ to the circumstances of the growing number of consumers who may opt for phased or later retirement, benefitting ultimately from higher annuity rates.
The paper also proposed increasing the current income allowance for alternatively secured pensions (ASP’s)and encouraging the development of the value protection pension annuity and products that provide a form of lifetime income guarantee. Maggie Craig, director general of the ABI, said the industry needed to adapt to the changing retirement requirements. She added that the UK pensions landscape is undergoing massive change, with the numbers drawing benefits from DC personal pension type savings in 2010 set to exceed 500,000.
The good news is that these retirees can expect to live longer. However, this improvement brings new financial pressures, which means the current rules and regulations are not really fit for purpose, she said. She further added that the savings industry is keen to rise to these challenges and meet the needs of savers in the UK. These proposals would make a real difference and help ensure people retiring from these type of schemes get the most from their hard earned savings.
Tom McPhail, head of pensions at Hargreaves Lansdown, supported the view that current annuity rules were in need of reform. He suggests that with the minimum age for taking pension benefits set to increase in any event in 2010, there is no real excuse for the government not to raise this threshold to 80, adding that the ABI’s proposals to allow value protection on pension annuities beyond age 75 and simplify how people can take their pension benefits would deliver real consumer benefits.
