Treasury to allow early USP clients to buy annuities
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The Treasury is to allow people in unsecured pension who are below the new minimum retirement age to buy an annuity without incurring a tax charge.
When the minimum retirement age was increased from 50 to 55 in April 2010, there were fears that some people who had moved into drawdown before the increase in retirement age would be unable to move to a new drawdown provider or buy an annuity without incurring an unauthorised payment tax charge.
In July, the Government decided to allow people in drawdown to change provider but decided not to allow any flexibility on allowing the conversion of drawdown income into an annuity.
However, in a statement on December 23 the Treasury said anyone who moved into drawdown before April 2010 and is now caught by the increase in retirement age can purchase a lifetime annuity without incurring the unauthorised payment charge.
Association of Member-directed Pension Schemes chairman Robert Graves says the Treasury’s decision was unexpected due to the small number of people affected and the fact that the problem would cease to exist in four years time.
He says: “When the change from age 50 to 55 was made it was pointed out that there were certain failings in the way the regulations were constructed.
“We are very glad to see they have listened and are prepared to make the changes that will benefit the small number of people affected. Perhaps this is a sign that the new Government and the new ministers are willing to put the interests of customers first.”
LV= head of pensions Ray Chinn also welcomes the Treasury’s decision and says: “The previous legislation could have trapped some customers in inappropriate drawdown plans, when their circumstances had changed after taking out the original plan. While the announcement in July went some way to help facilitate transfers to other providers, it still did not allow annuity purchases without a tax charge, and so this is welcome clarification.”
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