Although I did not hear it myself, I was interested to hear about a programme on Radio 4 which discussed the issue of compulsory annuity purchase by the age of 75 for holders of personal pension funds.
Several retired people expressed the view that if they had realised how very tightly restricted their options would be at retirement they would never have embarked on a personal pension.
What kind of message does this send out to younger listeners whom the Government claims to be trying to reach with stakeholder? An extremely negative one, I think we can all agree.
Beating every ounce of profit margin out of pensions does not make them a better proposition for anyone.
The most frustrating thing is that the annuity problem could be solved easily if only there was the political will.
Here is a suggestion. Upon reaching retiring age, the personal pensionholder could transfer his/her accumulated fund to a joint-life pensioner bond (with his/her spouse) and draw from it a set level of actuarially calculated rising income, tabulated according to age.
Annuity rates would emphatically not be a factor in this calculation, so the amount of income available could be set very much higher than under the present income-drawdown system, which is absurdly uncertain and complicated.
The level of income perm-itted need not be either flexible or variable – too many options only make life. more difficult for everyone – but, allowing for a certain level of assumed future investment growth, would be geared to be sustainable until the younger of the two annuitants reaches 100.
By then, the fund might be fully depleted and the pensioner might become a burden on the state but surely not for very long.
On death, the remaining value of the pensioner bond could be passed on to the annuitant's children by way of contributions to personal pensions of their own, perhaps subject to a modest tax charge of 10 per cent.
For bequests to parties other than the annuitants' own children, the tax charge might be 20 per cent. Thus, the Exchequer would still receive at least some revenue from the arrangement – always a factor, let us not forget – but pensioners could very well be significantly better off, as would their children and, very probably, the population at large would be much more inclined to save into a personal pension.
Are you listening Mr McCartney? If only.
WDS Independent Financial Advisers,