Tens of thousands of savers with index-linked annuities offering no protection against deflation will not be able to use these assets to fund the £20,000 minimum income requirement for flexible drawdown.
The Government’s new annuitisation rules came into force on April 6 but it is still consulting on draft regulations associated with the new regime.
The Treasury has confirmed to Money Marketing that, under draft proposals, RPI-linked annuities without a minimum lifetime guarantee will not count towards the MIR. Other ineligible assets include scheme pensions from defined-benefit and money-purchase arrangements with fewer than 20 pensioner members, ruling out the majority of scheme pension arrangements. The Government consultation closes this week.
Legal & General says around 18,000 of its index-linked annuity customers do not have protection against deflation. Prudential says around 9,000 clients could be affected while Standard Life says around 6,000 of its annuitants could be hit.
Standard Life head of pensions policy John Lawson says: “This is a bad idea. You would have to have a sustained period of deflation for the value of your annuity to be eroded and the Bank of England does not run the economy in that way.”
L&G head of annuity product developments Tim Gosden says: “This is a blow. It tends to be the bigger pots linked to inflation so in the context of flexible drawdown, it could be an issue.”
Burrows & Cummins partner Billy Burrows says: “If this is what they meant to do, it is a bit of a nonsense.”
A Treasury spokesman says: “As things stand, these types of annuities will not count towards the MIR. But this is subject to consultation and we are happy to discuss it with the industry.”