With the general election looming, it is still difficult to predict how high up the political agenda pensions will appear.
If the next Government is concerned about the long-term welfare of its citizens, then it should be very high and they could do worse than using the ABI’s recent retirement income policy paper as a starting point.
The paper puts forward a range of proposals to encourage more people to save. Importantly, given the current economic conditions, the reforms would not cost the Government large sums.
Increasing life expectancy, the rise of DC pension saving, more flexible retirement patterns, changes to the age limits for taking pension benefits and the scrapping of compulsory retirement all point to the need for annuity reform.
The present administration has always shown a dogmatic resistance to the introduction of greater annuity flexibilities but reforms need not undermine the “annuity deal” of ensuring valuable tax reliefs are used appropriately and pension pots are not be exhausted before death.
The ABI is calling for an increase in the age limit for buying an annuity from 75 to 80, allowing value protection annuities post-75, an exemption on the requirement to buy an annuity if the retirement income product offers a lifetime guarantee and increasing the maximum GAD income limit applied to Asps.
The trade body is also calling for a reduction on the tax rate on lump sum death benefits and to allow those with small pension funds to amalgamate funds with their spouse or partner to buy a joint annuity.
The current age-75 rule is unnecessarily restrictive. It does not take account of life expectancy increases and appears out of step with other Government initiatives.
With people spending more time in retirement, individuals should be given a better chance to maximise potential investment growth. This increase, coupled with an annuity exemption for products offering a lifetime guarantee, should encourage a raft of new products designed to
maximise retirement income.
Allowing value-protected annuities after the age of 75 would also encourage more people to save into a pension knowing their pot would not disappear if they die early a major barrier to saving for many.
The next Government should be focused on making pension saving as attractive as possible, especially to moderate savers, and thus undo much of the damage caused by the current administration.