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L&G wants a high bar for flexible drawdown

Aviva and Legal & General are urging the Government to set the minimum income for flexible drawdown at a level well above means-testing to ensure people act responsibly and do not fall back on the state.

Last month, the coalition unveiled plans to replace alternatively secured pensions with capped and flexible drawdown options from next April. The proposals allow people to take capped drawdown – the equivalent of an unsecured pension extended beyond 75 – for the whole of their retirement instead of buying an annuity.

The Government also proposes flexible drawdown – where people can draw unlimited amounts, provided they secure a minimum income. It is currently consulting on what the minimum should be.

L&G wealth policy director Adrian Boulding says: “We are very keen that the minimum level of income is set at a suitably high rate to avoid poverty and take pensioners above the means-testing threshold, but also to ensure people are able to play a proper, responsible role in society. This involves supporting grandchildren if necessary and maintaining their housing stock.

“I do not have a number in mind but it needs to be rather higher than the means-testing level and only above that level should you allow people to blow the rest on a round-the-world cruise. The state needs to save people from their own foolhardiness.”

Aviva suggests the minimum threshold should be set at twice the state pension, currently £97.65 a week.

Informed Choice chief executive Nick Bamford says: “I am not convinced we need to set such a high level. The thrust of removing the obligation to buy an annuity was to give people choice but now if we impose this high bar there might not be much left to pass on to your children anyway so not much has changed.”


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There are 3 comments at the moment, we would love to hear your opinion too.

  1. Colin Fergusson 12th August 2010 at 3:13 pm

    Would it not be better if people could potentially access their pension funds to assist with costs related to their old age, such as Long Term Care, Medical Assistance etc, rather allowing those with larger pension top strip out the capital value?

  2. ” Nick Bamford says: “I am not convinced…if we impose this high bar there might not be much left to pass on to your children anyway so not much has changed.”

    Don’t understand this ? If I take money out of my fund – true it is taxed – but unless I spend the money it is still there for my children.

    No one has the right to be poor and then expect me to feed them. If requiring a minimum drawdown level reduced the amount of state benefits paid we would be moving in the right direction.

  3. Allowing people to draw unlimited amounts of income from their pension fund sounds to me like a sure-fire recipe for early fund burn-out. What will the long term benefit of that be?

    What is needed is a properly structured, broadly universal Income DrawDown product designed to utilise the entire fund over the pensioner’s expected remaining lifetime (allowing for assumed AAG of say 5% p.a.) with an insured element to ensure continuation of the same level of income if the pensioner lives longer or if the fund burns out early. Easy enough for any quality insurer to do, one might reasonably think.

    The benefits? More disposable and taxable income flowing into the economy, less pensioner poverty, a genuine break from the shackle of GAD Rates, better perceived value from pension plans generally, etc, etc.

    Simple and obvious yet so far, it seems, the politicians are having a hard time grasping the idea. Probably the hand of Mark Hoban is somewhere in amongst all this.

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