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Buchanan claims Revenue plans for annuity transfers will add to the problems

Product providers have attacked the Inland Revenue’s proposals for annuity reform as unworkable and providing little benefit to consumers.

The Revenue has proposed enabling consumers to change annuity provider as well as allowing insurers to offer more flexible versions of the contract, such as decreasing annuities, as part of the draft Finance Bill 2005.

Scottish Life group communications director Alasdair Buchanan says providers will assume that anyone switching plans will have a short lifespan and are just looking for an improved impaired annuity rate. As such, they will have to provide comprehensive medical details which they will have to pay for themselves.

Given that annuitants who do not live as long as expected subsidise those who outlive expectations, transfer values will be minimal.

Buchanan says: “This is just introducing new prob-lems. Only people in poor health will look to transfer out and providers are not going to give them the full transfer value.”

Standard Life senior technical manager John Lawson says transfers will not take off but decreasing annuities could be useful in financial planning.

He says individuals could take a higher annuity to support their income until they get the basic state pension, at which point it drops but without reducing the annuitant’s total income.

Lawson says: “Providers will not be prepared to transfer people in or out but reducing annuities seem a reasonable idea.”

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