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Annuity reform &#39based on wrong assumptions&#39

IFAs are raising concerns that the Government is basing its proposals for annuity reform on unrealistic assumptions of what they charge a typical income-drawdown client.

The Government has published a series of proposals including the use of decision trees, the creation of limited-period annuities and allowing the transfer of annuities between providers.

It believes that enabling pensioners to take out a series of limited period annuities rather than using drawdown will lower costs to 1 per cent from 6 per cent.

But many IFAs are protesting that charging as much as 6 per cent on drawdown is very rare.

IFAs have also hit out at the idea of annuity decision trees, claiming a system of limited period annuities and transferring annuities bet-ween providers will heighten the need for specialist advice.

The FSA is to start work on producing comparative tables for annuity rates which it hopes will make consumers better informed.

Ideas for individual pension accounts have also resurfaced with the suggestion that they could be used to hold surplus pension funds left over after buying a limited period annuity.

Catmarks for annuities have been rejected as the Government believes they would promote traditional annuities and stifle innovation in new products so it is “not convinced of the case”.

Intelligent Pensions director Steve Patterson says: “The Government is drawing an enormous conclusion that everyone who writes drawdown does it on 6 per cent. We write it within 1 per cent.

“Decision trees may take the horse to the trough but they are never the whole answer. Post-retirement planning is far more risky than pre-retirement. It is incredibly naive to think it can be done without ongoing specialist advice.”

Money Marketing first revealed that decision trees and transferable annuities were on the cards in November last year.

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