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Tenon&#39s proposal gives choice on pension proceeds

In the article headlined, Annuity reform plans are doomed to fail, says ABI (Money Marketing, January 24), a recent article in the ABI&#39s quarterly insurance review was discussed which looked at the three suggestions that have been recently put forward in terms of abolishing the requirement for personal pension planholders to purchase an annuity by the age of 75.

The ABI article referred to a proposal put forward by Tenon (the so-called Tenon proposal). The ABI apparently concluded that the Tenon proposal would cost the Treasury money and could result in a very low income for some pensioners. Both these conclusions are incorrect.

In August 2001, we wrote to the Treasury setting out a proposal whereby the owner of a PPP would have a choice as to whether to purchase an annuity or instead to transfer the PPP funds to a registered lifetime personal pension fund. The RLPPF would be administered by a regulated authority and no capital withdrawals would be allowed.

The (taxable) income from the RLPPF funds would be paid to the pensioner concerned and, on her or her death, the assets in the RLPPF would be left to his or her heirs in the normal way.

At the time the PPP funds were transferred to the RLPPF, the Treasury would levy a modest withholding tax (probably around 10 per cent). This would be set at a level to compensate the Treasury for a reduced tax revenue as a result of the proposal. The pensioner could choose what proportion of the PPP to put into an annuity or into an RLPPF.

It will be appreciated that the Tenon proposal is revenue-neutral for the Treasury and would not force anyone down a route which would reduce their income. Pensioners could still take the annuity route for part or all of their PPP fund entirely at their own discretion.

The main logic of the Tenon proposal is it would give each pensioner a choice as to what to do with his or her PPP fund and, in these “consumer is king” days, one would have expected that the Government would look seriously at the Tenon proposal.

However, while I am sure the Treasury would accept my contention that nobody would be forced into receiving a lower income under the Tenon proposal than under current rules, it is true that in practical terms it would tend to be better-off pensioners that could take advantage of the RLPPF route.

If the Tenon proposal is not implemented by the Government, I suspect it will be because the Government does not wish to be seen to bring in a measure which would tend to benefit the better-off, notwithstanding the fact that neither the Treasury nor any individual pensioners would be forced into a position of losing out as a result of the Tenon proposal.

Maurice Fitzpatrick Head of economics,Tenon,London EC2


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