The Budget provided an ideal opportunity to amend the compulsory requirement to buy an annuity by the age of 75 for those with money-purchase schemes. It was a disappointment.
It appears everyone except Chancellor Gordon Brown knows that, at present, pensioners are finding that annuities leave them with less income than they had reasonably expected due to the low gilt rates generated by the fiscal surpluses resulting from Brown's high taxes.
As a result, people are minimising their pension savings until the obligation to buy an annuity at the age of 75 is abolished. It is not the sort of message we want to be sending out to people – there are enough disincentives to save as it is.
Having carefully considered the recommendations of the Retirement Income Working Party chaired by Dr Oonagh McDonald, a Conservative Government will end the compulsory requirement to buy an annuity with the whole of an individual's pension fund. We believe current and future pensioners are far better at making decisions about saving for their own retirement than Brown. Those with money-purchase schemes will only need to ensure they have a sufficient minimum income to keep them off state benefits. The remaining capital in the pension fund will be theirs to keep and, if they want, pass on to their children. It is only right that people with pension funds see no reason why they should hand over money to insurers that they feel should rightfully go to their heirs on their death.
Those who want to buy an annuity for certainty of income will still be free to do so – we are not abolishing annuities.
The reform of annuities must go hand in hand with a mission to cut the burdens being imposed on the pension industry over the past few years. It has had to wrestle with uncertainty over stakeholder pensions, the £5bn raid on pension funds and increasing red tape and complexity. One effect of the new burdens on personal and occupational pension schemes is an increase in the number of schemes closed to new members. For example, a report from the National Association of Pension Funds reveals that 17 per cent of final-salary pension schemes are now closed to new members (NAPF ann- ual survey 2000).
The result has been a massive decline in the number of new pension sch-emes. Since 1997, a total of 22,500 occupational pension schemes have been wound up and the number of new personal pension products has fallen from an average of nearly 30 a year between 1988 and 1996 to just 16 a year since 1997.
Much of the red tape is unnecessary and counter- productive in terms of achieving the Government's objective of encouraging further private pension provision. The pension industry should be left to devise ways of managing pension funds while it is the Government's job to lay the foundations that encourages private pensions to grow, not deteriorate.
If our wider objective is to make pension saving attractive and remove the disincentives, then ending the compulsory purchase of annuities and reducing complexity and red tape in the pension industry is surely the common sense we need.