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Categories:Pensions,Politics

Labour calls for retirement income review

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Labour is pressing for a commission to tackle dramatic falls in retirement income as industry experts suggest a Government review of GAD rates due to gender equalisation could be extended to look at reforming income drawdown rules.

Labour Shadow Treasury financial secretary Chris Leslie (pictured) says a Government commission or review is needed to explore solutions to falling income levels available for those entering retirement.

In an interview with Money Marketing, he says: “The economy is going to be flat for a while, so we need to think of something that will help people hitting retirement. We need a review or commission to properly think up some options.”

Annuity rates have fallen by around 20 per cent over the past three years while annual drawdown payments have been dramatically reduced due to the Government cutting the maximum income from 120 to 100 per cent of GAD last year and falling gilt yields.

AJ Bell marketing director Billy Mackay says a 65-year-old male with a £250,000 pension pot has seen their maximum drawdown income fall from £20,400 to £13,750 in a year.

AJ Bell wrote to Treasury financial secretary Mark Hoban last year calling for an overhaul of the rules used to calculate drawdown income, which was rejected due to concerns about exhausting funds.

Money Marketing understands that Treasury officials have started work on equalising GAD rates before the Test-Achats ruling comes into force on December 21 this year.

MGM Advantage pensions technical director Andrew Tully says: “This is as good an opportunity as any for the Treasury to take a look at the whole drawdown process and I think they will come under a lot of pressure from providers to do that.”

Mackay says: “A review of the GAD tables ahead of the implementation of the gender directive seems like a good opportunity to consider reform.”

Leslie says he hopes a commission would look at drawdown income reform but suggests other issues are more pressing. He says: “The bigger issues are related to longer-term depressed annuity options, problems from Solvency II as they affect annuities and the need to recognise that those waiting for the optimum moment to purchase annuities are finding it increasingly difficult.”

A Treasury spokesman ruled out a retirement income review or commission.

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Readers' comments (4)

  • As alternatives to annuity purchase becomes more common, what incentive is the 55% tax on pension funds on death and the lack of significant access to draw on these asstes for long term care and other major "3rd age" provision? A great time to be intoducing compulsion through work placed pensions! Although we do not wish to have further pension "simplification" the initial tax relief hardly compensates for poor annuity values, death tax and lack of flexibility. Reform is needed.

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  • Who benefits from greater annuitisation of pension pots. The government that needs to borrow!!

    The government that borrows at very low interest rates can finance deficit spending quite nicely.

    I do wonder therefore if drawdown rules are going to remain disadvantageous to increase the amount of money going into government bonds.

    Like inflation, just another sneaky tax in my eyes.

    Oh how I wish I had a final salary pension backed by the taxpayer and a rabid union to defend my stash!!

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  • As I have proposed many times (and I've written at least twice to Steve Webb on the subject), concerns about exhausting funds could be addressed by the installation of an insured element. Given that the possibility of funds burning out would lie 20 years or more in the future then, notwithstanding the requirements of Solvency II, I can't see how such a guarantee would be particularly expensive. The first step is for a few of the strongest insurers such as Prudential, L&G and MetLife to design and put forward such a product for the government to consider.

    Given the Conservative party's pre-election manifesto pledge to put right as much as possible of the damage done to the pensions framework over the past 25 years, on what basis could the government reasonably reject an alternative product that provides a higher level of retirement income, thereby generating more income tax, without loss of security?

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  • When will politicians learn that their fiddlin' wiv de settins doesn't work, in fact it invariably has the opposite effect of what was intended.

    As far as GAD is concerned what have they done for society? Oh, LAUTRO assumed expenses.

    And what have the regulators done for society? Oh, prescribed unrealistic rates of growth which have lulled millions of pension savers into a false sense of security.

    It is a shambles. No wonder life offices want to offload they annuity books PDQ, some were wise enough to do get rid years ago.

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