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.
Aviva head of policy John Lawson (pictured) says: “The 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 do not 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 would 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 would ask the Treasury to 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.”
There has always been a need to consider whether the product market is being distorted by HMRC’s rules on certain things.
The Revenue needs to stop being paranoid about people running out of money and start being realistic and create a system that is sensible.
Post-Budget, most of the existing rules need to be scrapped and replaced with something much simpler.
Robert Reid is managing director of Syndaxi Chartered Financial Planners
HMRC does need to look at tax rules and the annuity rules to allow product innovation on the back of the Budget reforms.
But I also believe a lot of providers and investment houses will try to bring out new and innovative products that are trying to reinvent the wheel.
Providers need to make sure the products they are designing are actually going to be useful for people and more importantly that savers are not just rolled over into taking on providers’ products when these might not be suitable.
Laith Khalaf is head of corporate research at Hargreaves Lansdown