The Treasury is being urged to review drawdown rules and consider proposals to allow savers with life limiting medical conditions to take more income in retirement.
The Government is coming under growing pressure to provide people with greater flexibility in retirement in response to concerns about the value for money of annuities.
Liberal Democrat pensions minister Steve Webb has suggested people should be able to ditch their annuity provider if they are unhappy with their existing deal.
Under existing rules, annuity providers can offer customers a better rate if they have a health condition or lifestyle that reduces their life expectancy.
However, people who go into drawdown are subject to a strict annual income limit of 120 per cent of the equivalent GAD annuity rate unless they have secure pension income of more than £20,000. This limit cannot be increased, even if someone suffers from an illness that reduces their life expectancy.
Aviva head of policy John Lawson says: “Unfortunately providers are not allowed to offer enhanced drawdown at the moment. GAD rates are calculated on a standard basis and we would have to get the Treasury to produce enhanced maxima to allow this to work.
“If the Treasury did allow this I think it would be attractive to providers and consumers. It may require some systems changes on our part but not a massive change.”
Informed Choice managing director Martin Bamford says: “Anything that increases the flexibility of pensions would be welcome but, given it has already increased the drawdown maximum to 120 per cent, I would be surprised if further reform is at the top of the Treasury’s agenda.”