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.”