View more on these topics

Arfway house for Irish annuities

A change in the rules on the obligatory purchase of an annuity seems inevitable.

The Choices paper on annuity reform by Dr Oonagh McDonald has tapped into a seam of desire for change. Those wanting to keep the status quo are becoming thin on the ground.

The issue is of such core importance for Middle England that the debate could even reach election manifestoes – one of McDonald&#39s aims.

But some commentators believe the Government has yet to come out with any concrete proposals because it wants to let the debate proceed before committing itself.

Others are moving more quickly. Conservative MP John Butterfill&#39s private member&#39s bill is scheduled for its second reading on March 9 and his proposals are echoed in former Labour MP McDonald&#39s paper.

Many in the financial services industry support the direction of the reforms, as do the Liberal Democrats.

LibDem MP Vincent Cable says: “We raised the issue in the House of Commons two years ago. Steve Webb and I got a long adjournment in a debate over the issue. At the time, the Government undertook to deal with the antiquated regulations and bring an end to this paternalistic system.”

A Treasury spokesman says: “We are looking at the issue and the way forward. But we have a lot of issues in this area such as the minimum funding requirement, pension misselling and annuities. We think it is sensible to tie all these strands together in one large announcement. But we have no idea of the timetable for any announcement.”

The Treasury&#39s principal concern is that people will blow their retirement provision in a spending spree.

Butterfill&#39s bill proposes that people are given the freedom to spend the money how they want after buying an index-linked annuity up to the level of the minimum income guarantee to ensure that they do not have to fall back on state benefits.

After April, when the Mig rises to £92.15 for a man, an annuity to cover this figure would cost a 65-year-old man around £70,000. Under Butterfill&#39s proposals, the remainder of the pension fund would be paid to the individual as a tax-free lump sum.

But there are some annuity experts who, like the Treasury, remain cautious.

Morestead director William Burrows believes there should be a debate about compulsion. He says: “Forcing people to buy an annuity equivalent to the minimum income guarantee at the age of 65 would give them less flexibility than they already have. The average annuity purchase price is £30,000.A Mig would cost £70,000.”

Those looking to change the system already have a real situation to study. The Rep-ublic of Ireland relaxed its laws on the mandatory purchase of annuities in 1999 and so far the rule changes have been popular.

Initially, the rules applied only to the self-employed and directors holding a substantial stake in their own companies but they have been extended to cover all those paying additional voluntary contributions.

The Irish system allows pension funds to be invested in approved retirement funds (Arfs) which some banks and institutions are offering.

The rules for making financial services products into an Arf are very straightforward, resulting in a wide range of products being made available to those investing their pensions.

Mercer Irish Pension Trust director Alan Broxson says: “You could put the whole lot on the five o&#39clock at Ascot but there have been no reports of that happening. It has not been a good year for equities but it is early days yet and the people who are using these funds are fairly astute.”

Mercer head of retirement research Paul Kenny says: “The rule changes have been exceedingly popular. People with ongoing care of dependent physically or mentally handicapped children are particularly happy that they can pass on their funds to them when they die.”

Kenny says: “The other area of particular benefit is for people who do not need the income from their annuity because they have other sources of income. They can then pass on the benefits of their pension fund to their families.”

Recommended

L&G Insurance launches health cash plan

Legal & General Insurance is launching a low cost health cash plan, offering cash benefit cover from 40p a day. Essentials Cash offers three levels of care including optical and dental care, alternative medicine and in-patient care. Commission to advisers can be taken as either a one off payment of 40 per cent of the […]

Baring Asset Management launches five sector fund

Baring Asset Management is launching a new five sector fund following research which indicates growing demand for sector investments. Of 50 IFAs surveyed, 76 per cent say they are now more wary of single sector funds than they were 12 months ago, according to research conducted by Citigate Dewe Rogerson in January 2000. The Baring […]

L&G to provide Stock Exchange with stakeholder

Legal & General has been appointed to provide the stakeholder pension scheme for the Stock Exchange centralised pension fund. The scheme will be available to around 25,000 employees of 400 companies working in the securities industries. L&G head of retail pensions Randle Williams says: “We are delighted to be providing stakeholder pensions to companies within […]

Find the exit

It is that time of year again. As we approach the end of the tax year, the minds of many advisers will turn to last-minute tax planning. Aside from the inevitable annual rush for Isas, there will be top-ups to pensions, carryback and carry forward and capital gains tax planning, all combining towards a hectic […]

Newsletter

News and expert analysis straight to your inbox

Sign up

Comments

    Leave a comment