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Think-tank: UK market still well suited to annuities despite pension freedoms

Despite the pension reforms the UK market remains well suited to annuitisation, influential think-tank the Pensions Policy Institute says.

In a report, sponsored by the Investment Association and The People’s Pension, the PPI compares the UK system with Australia, Ireland, New Zealand and the US.

It says that despite the new freedoms – which allow savers to take their entire pension pot in one go – factors such as tiered tax rates, a relatively low state pension, the existence of free healthcare through the NHS, and a sophisticated annuity market means it could be an advantage to securing a regular income.

PPI director Chris Curry says: “While the behaviour of DC savers overseas, where drawdown products have frequently been popular, can provide some insight into the direction of travel of the UK, there are significant differences that may have an impact on its response to pension flexibilities.

“Differences between the UK and the US, in particular, mean that some of the barriers to annuitisation in the US are absent in the UK.”

Curry adds countries such as Australia are heading in the opposite direction to the UK and considering some form of compulsory annuity purchase.

He says: “It is possible further steps will be considered in the UK that ‘nudge’ individuals towards decisions that ensure they have a regular income stream over the course of their retirement.”

The report also warns “significant governance gaps” are emerging as a result of the reforms.


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There are 6 comments at the moment, we would love to hear your opinion too.

  1. I agree. Being a cynic I believe that much of the enthusiasm by the industry for these new ‘freedoms’ (the freedom to eat dog food in later life!) is based on self interest. An annuity is a one off event chargeable at around 1% at best (if you have any pretentions to TCF). Keeping the fund invested provides a continuing income stream to the adviser and fees to fund managers and platforms.

  2. Harry: Whereas annuity providers of course manage all that money they’ve got forever for free, which is why annuity rates are so generous… *wink*

  3. Sascha

    Just ask the client two questions:

    “Would you like to receive a guaranteed income, with no risk for the rest of your life?”
    Invariably the answer will be yes.

    If you ask the public – “Would you like an annuity?” most will answer no. Being scammed by the press, the industry, the government and out of pure ignorance.

    In a matter of months George has decimated pensions for those who seriously want to save and has seriously disadvantaged those about to take their benefits – all wrapped up in the chimera of freedom of choice and responsibility. What will happen is the exact opposite of responsibility and the freedom will be to eat dog food in later life.

    Odd isn’t it that we now don’t hear of the Australian model – that went for these freedoms a few years back and is now seriously considering compulsory annuitisation once again as pensioners run out of cash and the shares of Pedigree Chum rise inexorably.

  4. Harry: You should consider a side business as an opinion pollster. If I asked the same clients “Would you like to keep control of your money and would you like to pass your pension fund onto your children” the answer will invariably also be yes. Anyone can ask a leading question and get the answer they want. The middle ground between the two, whether the client prefers freedom or guaranteed income and whether they are willing to pay the cost, is where we advisers earn our dough.

    If you want to bring up Australia you should at least actually read the recent articles in this very paper about it. The reason they are considering bring back some form of compulsory annuitisation is not that pensioners are blowing the wad, but that they aren’t spending *enough* – leading a think-tank to pontificate that Australian pensioners are unnecessarily lowering their standard of living out of fear of running out.

    Incidentally, you’d have to be very financially dim to live off Pedigree Chum – it’s about 60p a can, any half-decent cook can make a perfectly good human meal for less than that if they have a stocked cupboard and are willing to shop in the value range.

  5. I’m not that confident of the accuracy of reporting in this paper and prefer to rely on the Economist – from which this view of Australian pensions was gleaned.

    Point taken re: Pedigree Chum!! But at least it can be eaten straight out of the can – no preparation needed!

    As to passing on a pension fund – you must have very altruistic clients. Mine didn’t seem prepared to sacrifice income now for the uncertain bequests later.

  6. PS

    And in the main most of my (now ex) clients are scheduled to live beyond 75 – so tax will be payable anyway.

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