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Providers call on Government to ‘tear up the rule book’ on annuity income

Pension providers have called on the Government to relax rules on annuity product design in the wake of Chancellor George Osborne’s radical retirement overhaul.

Responses to the Treasury’s consultation on the Budget reforms have largely focused on the controversial guidance guarantee due to be introduced in April 2015.

But MGM Advantage, Aviva and Just Retirement say rules inhibiting flexibility on annuity income are preventing innovation.

Aviva head of policy John Lawson says: “Treasury should just be concerned with how they tax income that comes out of products. We would say ‘allow us complete flexibility to design products that meet customers needs’.

“At the moment you don’t have that flexibility.”

Although annuities can be linked to variables such as inflation, the rate cannot go down.

Providers say disability-linked annuities, where a client being registered disabled would trigger a rate increase, or so-called U-shaped annuities could be made available if retirement income rules were more flexible.

MGM Advantage pensions technical director Andrew Tully says: “We’d like the flexibility to ask customers what exactly they want and then we can design it that way. Some people might want a U-shaped annuity or might like the ability to take a lump sum out of an annuity.”

Just Retirement group external affairs and customer insight director Stephen Lowe says: “At the moment an annuity income cannot go down. We’d ask of Treasury that they create a level playing field between what you can do in a drawdown environment and what you can do inside a guaranteed secure income environment.

“The best thing Treasury and HMRC could do is tear up the existing rule book. Suddenly you could start to see greater product innovation. Because it is not a lack of creativity, it is a restriction that stops you doing it today.”

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Comments

There are 5 comments at the moment, we would love to hear your opinion too.

  1. “We’d ask of Treasury that they create a level playing field between what you can do in a drawdown environment and what you can do inside a guaranteed secure income environment.”

    So if income can fall how can it be a guaranteed secure income environment?

  2. I would have thought how an annuity is calculated would be an area ripe for change.

  3. 1. Don’t mess with the certainty of income
    2. If you really want to be innovative, reduce the tax for those taking an annuity. say for BRT at 15% and HRT at 35%. This will compensate for the snatch on dividends. It will encourage annuity uptake which the Government needs – who else will buy their crap Gilts?

  4. Samuel Lewis Mayes 13th June 2014 at 8:09 am

    @sean the income will most likely be guaranteed to track some benchmark i.e. interest, gilt, mortality etc

  5. @Sean, Theoretically, you could have an annuity that pays a pre-defined amount so that the customer knows that they will have £500 per month in years one to five, £350 per month from then on and then pay £600 per month once a particular condition or conditions are diagnosed. There would be complex actuarial science required, but it’s feasible. If the market didn’t want the product, that could be determined by research, but that’s not going to be done while there are restrictions on the permissibility of the product design.

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