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IFAs warn Kelly annuities are big disincentive to pension savings

The Government came under fire over its plans to reform the annuity regime at a public forum in London last week, with its critics claiming they will do nothing to motive people to invest in pensions.

The proposals would allow transfers between advisers and a limited period annuity but do not change compulsory purchase at 75.

Speaking at the Financial Services Forum, Treasury economic secretary Ruth Kelly defended the annuity proposals. She claimed they are designed to provide lower earners with more flexibility in retirement, while avoiding providing a tax break for the rich.

But Kelly was told by Aberdeen Asset Management marketing director of investment trusts Piers Currie that other countries, such as Ireland and the US, have scrapped the compulsory purchase of annuities, so there is no reason why the UK cannot follow their example.

Currie said: “It is a very British thing, this law which came into being in 1921. The Irish managed to do away with it. The Americans just say we will tax the sum and make our money that way.”

Two IFAs present at the event, modelled on BBC&#39s Question Time, said the reforms show the Government is out of touch with the attitudes of savers. Advisory & Brokerage Services managing director Gareth Marr said: “I think the fact on the street is definitely that the requirement to buy an annuity at 75 is a disincentive for people to go into pensions. I can give you case after case which says that.”

Hazlems Financial adviser Tim Schofield said: “If you want to encourage people these days to put money into a pension scheme, I think one of the major things you have to look at is to take away the compulsion to buy an annuity.”

Shadow Paymaster General Howard Flight and Liberal Democrat trade and industry spokesman Vincent Cable, who were on the panel with Kelly, also rejected the minister&#39s claim, saying the plans do not go far enough.

But Kelly said: “What I think you would do by abolishing the requirement to buy an annuity is to encourage higher-rate taxpayers to shift money into pension funds for the purpose of not providing themselves with a secure and steady income in retirement but for something other than that.”


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