The annuities alternative
Alternative retirement income providers are expected to benefit if the Conservatives win the general election after the party committed to ending compulsory annuitisation at 75 in its economic manifesto.
Shadow pensions minister Nigel Waterson has confirmed the restriction would not be pushed back to a later age but scrapped entirely, although people would have to have a minimum level of income to ensure they do not fall back on to the state. He says: “The plan is to get rid of the requirement to annuitise or the rules that make it compulsory, because if you do not do it you pay a huge penalty.
“Apart from people having to retain a sufficiently large pension pot to make sure they do not fall back on to means-tes- ted benefits, they should be able to do more or less what they want with their pension savings.
“If they want to annuitise, that is fine. If they do not, that is fine too. We are still working out some of the tax implications with the Treasury team.”
Hargreaves Lansdown pensions analyst Laith Khalaf believes the move would promote product innovation Khalaf says: “It would be positive news for the industry as a whole. From the back end, it will open up the retirement market, making it easier for annuity alternatives, such as income drawdown and temp- orary and variable annuities.
’Anyone who looks to innovate into that area with products that can run beyond 75 will be a winner. Providers with new wave annuity products and Sipp and drawdown products will evolve to fill that space, no doubt about that’
“At the moment, these products have a barrier at age 75, at which point they have to give up the ghost or impose harsh restrictions. Removing the age 75 rule would enable providers to create better products for people.”
He says it would also encourage people to pay more into pensions. “It will also be really positive from the front end. People putting money into pensions will suddenly think, I do not have to buy an annuity, I can take a lump sum at 55 and if I die I can pass my money on rather than giving it up to an insurance company.
“Scrapping compulsory annuitisation has a lot of benefits in attracting people to pensions, which is why I think it is important.”
AJ Bell marketing director Billy MacKay welcomes the move but says the number of people affected will be small.
He says: “I do not think people should get too excited as the vast major- ity of the population will require access to their retirement fund well before age 75. This is not a massive thing for providers but for the individuals involved it is very good news. You could probably argue that the traditional annuity players will be the losers but the numbers will be low so it will not hit them too hard. Will products evolve? Yes. Anyone who looks to innovate into that area with products that can run beyond 75 will be a winner. Providers with new wave annuity products and Sipp and drawdown products will evolve to fill that space, no doubt about that.”
Mackay adds that the Tories’ plan is also sensible from a revenue point of view.
He says: “The current Government has an aversion to changing the rules because they think it would encourage tax avoidance but this can be changed in a way that ensures the client wins and the Treasury wins in terms of revenue.”