Forced measures

February Retirement Strategy | By Gregor Watt

Martin Bamford Managing director Informed Choice

Forced annuitisation is only of interest to a small number of people, in the same way that Asp is only really of interest for a small number of people. But that is not to say that it should not be scrapped. I am all for the freedom for people to make their own decisions, make their own mistakes in some cases.

If it is money you have built up during your own lifetime and you decide that the priority because of your circumstances is not to buy an annuity or go into a very heavily taxed Asp environment, then you should be free to make that decision yourself.

The revenue have always held the thought, in fact, they have said it quite specifically in writing several times, that pension savings should be for the provision of income in retirement, that is the primary and sole purpose. So scrapping forced annuitisation at 75 on its own would not be enough to change the focus There is a lack of joined-up thinking. We have got so many different messages from the current Governmentof pensions savings to make them a choice between income in retirement and benefits for future generations. It would take a more radical change for the Tories for that to be the case.

The bigger issue is a lack of joined-up thinking when it comes to pension policy.

We have got so many different messages from the current Government all getting mixed up together. You have got one saying that we’ve got to work longer and save more for our retirement, we’ve got one currently forcing a retirement age of 65, combined with this attack on getting tax relief on pension contributions.

There is general uncertainty about what pension policy will look like in the future. I think that until pension policy is outsourced to an independent policy board, like the MPC and interest rates, and there is some stability when it comes to pension policy, scrapping forced annuitisation at age 75 will help but it will not necessarily be the strong signal that they need to send to encourage more people to save.

Sometimes, it does force people to make decisions in quite short timescales because they have left it until the very last minute. But we are talking about a minority of clients, the vast majority have annuitised by the time they have got to 75 or died.

Those that do get to 75 and find themselves having to make that decision don’t tend to plan ahead that well, so getting rid of that mandatory age where an action has to take place I think would be very helpful.

Nick Bamford Chief executive Informed Choice

People often say “I have to buy an annuity by the age of 75”. Well, you don’t actually because there is this thing called alternatively secured pension - but you probably would not want that anyway.

In practice, what tends to happen for the vast majority of people is it makes real sense, probably way before they reach age 75, to be buying an annuity. This is for security, knowing they are going to get that guaranteed stream of gross income, combined with the fact that the closer you get to the point where you are not generating income through employment, their investment appetite, their tolerance to risk tends to dissipate a bit and they become quite cautious.

We all know the reasoned argument against annuitisation in terms of the ability to pass on the next generation. But actually what people tend to Consumers don’t want choice at all, what they want is the hospital closest to them to be really good and cleanneed to do is to secure their income position. Annuitisation is about guaranteeing income and giving people security.

This is another example of “really we are not trying to help the situation, what we are doing is responding to the perceived demand for choice among consumers”. It is the same when they talk about choice in the healthcare system. Consumers don’t want choice at all, what they want is the hospital closest to them to be really good and clean. But, of course, politicians can’t deliver on that so they have to offer something else.

It is the same for age 75. They can’t actually deliver what people actually want, which is really good annuity rates, so what they deliver is choice.

For the vast majority, the choice is a bit artificial because the chances are if you have £40,000 you are going to take your tax-free cash and annuitise. You are not going to take your tax-free cash and leave £30,000 inside an unsecured pension with annual management charges of 1.5 per cent and adviser fees and all the rest and all the associated risks that go with it.