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McCartney rules out &#39change for the rich&#39

The Government has drawn a line in the sand on annuity reform, stating more bluntly than ever the reasons for not relaxing the rules.

Speaking at a fringe meeting at the annual TUC conference in Brighton last week, pensions minister Ian McCartney said he had no plans to change the current annuity rules because only the rich would benefit.

He said: “Some of the arguments being pressed on the Government are valuable only to the very wealthy. I would resist such a change. I have nothing on my table that suggests to me we should be damaging the concept of providing a lifetime income for people.”

This was the first time that a pensions minister has used this explanation in public to dispel rumours of annuity reform, particularly the age 75 compulsory purchase ruling.

Could this be the conclusion of the review the Government promised in its election manifesto earlier in the year or was McCartney, as he is known to do, simply speaking his mind in answering a question from a TUC delegate?

IFA Annuity Bureau head of marketing David Marlow says: “I am surprised he is being so blunt about it. It is disappointing. Even if it is a minority pressing for change, it is a significant minority.”

Whatever the reason for the minister&#39s comments, the industry has reacted with surprise and, in some cases, disappointment.

Industry sources say the comments indicate the Government does not understand what the debate is about, and there is a long way to go before the battle can be won.

Leading the lobby for change is former Labour MP and regulator Dr Oonagh McDonald. Her Retirement Income Reform Campaign has not been successful so far but supporter Tory MP David Curry has tabled a Private Member&#39s Bill seeking to change the annuity rules. This will be debated in Parliament in the autumn.

McDonald says McCartney&#39s statements demonstrate the Government does not understand the annuity issue.

She says: “It is clear the Government does not understand how annuities work. The changes we are seeking will give people more choice and flexibility while not putting one group of annuitants over another.”

She points out the rich tend to live longer and are being subsidised by the poor, who tend to die sooner.

Scottish Equitable manager (pensions development) Margaret Craig says: “It would be nice to see what his definition of wealthy is. This is not just an issue of wealth, it is also an issue about choice.”

There is also the argument that people of working age will be more motivated to save for retirement if they know they will not be forced to invest it one particular way when they reach a certain age.

Clerical Medical pensions strategy manager Nigel Stammers says: “Annuity reform is all about helping everyone getting better value out of their pension pot. As a concept, offering flexibility works as an incentive for people to save more for their retirement.”

However, some in the industry agree with the sentiments expressed by McCartney.

Britannic Retirement Solutions corporate development director Bob Bullivant says he is not surprised. He is happy with the recent move by the FSA to compel providers to inform policyholders about the open market option but he does not see the need for wide-ranging annuity reform.

He says: “Until someone produces a sensible alternative, I cannot see the Government being convinced. The people making the most noise tend to have the biggest pension pots.”

This had been the line of the Government until McCartney&#39s comments last week. It has urged the industry to create annuity products to work within the existing framework.

Prudential Annuities head of marketing Trevor Mitchell says: “I think further progress is possible within the existing annuity framework. Focusing on the age 75 rule misses the point because most people need insured income by then anyway. Looking at issues such as capital protection may prove more helpful.”

The annuity debate is unlikely to go away. The majority of IFAs and providers agree the rules are outdated and restrict consumer choice, the Opposition parties advocate relaxation and pensioners want a better deal. But until the Government is presented with an ironclad case backed up with irrefutable numbers, it seems unlikely to budge.

However, the pensions minister did complete his comments at the TUC by saying: “If someone comes forward with an idea we will look at it.”

But if Cherie Booth, QC, the Prime Minister&#39s wife, successfully represents pensioner Joe Singer in his challenge of the rules under the Human Rights Act, the Government will have to embark on a radical rethink.


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