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Treasury U-turns on RPI-linked annuities MIR ban

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The Treasury has backtracked on plans to prevent savers using RPI-linked annuities without a floor to meet the minimum income requirement for flexible drawdown.

In May, Money Marketing revealed tens of thousands of savers with index-linked annuities offering no protection against deflation would not be able to use these assets to fund the £20,000 MIR under draft regulations.

However, legislation laid before the House of Commons yesterday says annuities linked to the retail prices index will now be considered as “relevant income” for the purposes of meeting the MIR.

The new legislation will come into force on August 11.

Standard Life head of pensions policy John Lawson says: “Under the new legislation annuities are allowed to vary in line with the RPI without having to have a floor for the purposes of meeting the minimum income requirement.

“This is a win for the industry and a win for common sense as well.”

However, under the new rules investment-linked annuities without a guarantee will not count towards the MIR.

A J Bell technical marketing manager Gareth James says: “The inclusion of RPI-linked annuities was expected, and is positive news. It is disappointing that this good news will not extend to all investment-linked annuity holders.

“They will only be able to count the guaranteed element of their annuity, if such a guarantee exists.”

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Readers' comments (4)

  • I am in agreement with the legislation on both points. They were always going to sort out the negative RPI issue, and I can see no reason why anything in excess of the guaranteed element of an investment-linked annuity should count.

    Perhaps Gareth James could explain why he finds this disappointing?

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  • Allowing all income to count from some annuities, some income to count from others, and none from the rest will make the flexible drawdown process more complex.

    The draft SI allowed for at least some income to be counted, even where there was no income guarantee. Retaining that provision seemed sensible.

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  • Sorry Gareth, have to agree with David on this one. I think Govt has taken a sensible approach on this, otherwise all sorts of manipulation of investment-linked contracts would have been inevitable. Those contracts with guaranteed minimum income levels also have strict parameters and controls. It is good to see Govt policy laced with logic.

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  • Makes sense to me as well. "all income to count from some annuities, some income to count from others, and none from the rest" is a deliberately obtuse way of putting it. All you need to say is 'guaranteed pension income' - everyone understands what 'guaranteed' means and that 'dependant on investment performance' is virtually the opposite.

    'What if the RPI falls (and the insurer doesn't waive the right to decrease the annuity as they did last year)' is in the same realm of probability as 'What if the insurer goes under'. If you ignore one it makes sense to ignore the other. You could argue that as the possibility exists the income is not 'guaranteed', but that sets such an impossibly high standard that the word 'guaranteed' loses practical use.

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