The Conservative Party made welcome pension headlines last week with its pledge to scrap forced annuitisation. If elected, the Tories would end the current requirement to buy an annuity by age 75 and introduce new rules requiring people retain enough of their pension pot to ensure they can look after themselves.
Of course, at present there is no concrete requirement to annuitise by 75 as they can move into ASP. But this route is not well understood and comes with a punitive tax rate of 82 per cent on death. If the Tories get into power, they must strive to achieve the pension simplification that the current administration promised us and totally failed to deliver. Scrapping forced annuitisation would be a great start.
The majority of the population would still annuitise before 75 but that is no argument to retain the status quo. A growing number of people would be able to take advantage of the new flexibilities to make the most of their pension pots in what could be a long and expensive retirement period, where their lifestyle needs may change a number of times.
A liberalisation of the annuity regime would encourage more providers into this market and create a greater and more competitive range of at-retirement products. But the biggest argument in favour of abolishing forced annuitisation is the signal it sends out to future savers. The current rules act as a disincentive to save with people concerned about losing control of the assets they accumulate.
A fair tax rate, acknowledging tax relief benefits, should be charged on sums that are passed on to future generations, negating the need for expensive onshore and offshore schemes to get round the current rules.
Noticeably, the Tory economic manifesto made little mention of personal accounts, or Nest as it is now called, preferring to simply commit to auto-enrolment for low and middle earners. We await further Conservative thinking in this area.
Someone central to any political debate around pensions is Pensions Policy Institute director Niki Cleal. PPI research is often the cornerstone of political pension arguments and its work is held in high regard due to the institute’s staunch impartiality. This month, Retirement Strategy hears Cleal’s views ahead of a general election, where pension and welfare reform could be a key battleground.
Elsewhere, Suffolk Life marketing director John Moret offers up some thought-provoking statistics about the impact of increased longevity.
Moret, who has spent a great deal of time researching the subject, warns that Governments across the world are failing to grasp the severity of the issue.
As always, comments and ideas for future issues can be sent to firstname.lastname@example.org.