The Government’s dogmatic position on forced annuitisation flies in the face of its current pension reforms, says Conservative Shadow Treasury financial secretary Mark Hoban.
Speaking at a Cicero Consulting/Investment Management Association event at the Conservative Party conference last week, Hoban said the Government’s position is illogical considering the huge shift from defined-benefit to defined-contribution schemes and the proposed personal accounts.
He said individuals will be accumulating reasonable pots at retirement and requiring increased flexibility and greater control of their savings, so a change in the rules would incentivise more saving.
He indicated that the Tories will almost certainly call for an end to forced annuitisation in their manifesto and that a new Government is the only way to change the rules.
Hoban said Government objections over tax leakage and ensuring people do not use up their assets and become reliant on the state can easily be solved.
He said the issue of recovering the value of tax relief does need to be addressed but the Government is on “dubious grounds” as in many circumstances it will receive more tax income by relaxing the rules.
He said issues around inheritance tax and passing on funds should be separated from calls for greater investment flexibility for people’s retirement pots.
He said the Government’s position exposes its politics of envy but after speaking to many financial advisers he believes this is not an issue simply for the rich but about extra flexibility across the market.
Hoban said: “The Government is setting itself against the future face of pensions. It is illogical. Its own pension reforms will lead to a point where it has to reconsider this in a matter of years. They have got to wake up to it but they show no sign of doing so.”
IMA chief executive Richard Saunders told delegates the trade body is undertaking a major piece of research modelling potential alternatives to conventional annuities.
He said the three Government arguments over forced annuitisation – about giving certainty, worries about falling back on the state and use of the tax relief – can easily be rebutted.
Saunders said individuals are better judges than the Government about what to do with their savings. He said measures could be put in place to ensure individuals do not fall back on the state and said tax relief could potentially be taken back but flexibility should be allowed for individuals’ contributions.