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ScotLife seeks split on cash sum and annuity purchase

Scottish Life is lobbying for the timing of taking tax-free cash from a pension fund to be separated from annuity purchase in its submission to the Government&#39s annuity consultation.

At present, policyholders must buy an annuity and take their tax-free cash all-owance on the same day. ScotLife says this is an unnecessary restriction and leads to poor annuity decisions from people eager to get their hands on a tax-free lump sum.

The lump sum is often used to clear mortgage payments on retirement but leaves the pensioner locked into an annuity for life.

ScotLife says investors should be able to draw tax-free cash on retirement but be allowed to delay buying an annuity without the need for income drawdown.

It believes by separating tax-free cash and annuity purchase, saving for a pension would be more attractive and would ensure people have time to shop aro- und for the best annuity deal.

ScotLife also wants the Government to fund advice on annuities. It says £350 would be enough to cover the costs of guiding a consumer through the options available to them.

Head of pensions strategy Steve Bee says: “The timing of annuity purchase and the taking of a tax-free lump sum should be split. This would prevent people buying annuities at inopportune times just to release cash. Many may make a decision they might come to regret for the rest of their life. This would help make pensions more popular.”

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