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Modernising annuities
Barnett Waddingham's response to the DWP's consultation document issued in early February 2002.
- On the evening of Tuesday 5 February the Government (through the DWP and the Inland Revenue) issued its consultation paper on annuity reform. This comes in response to pressure in recent years, primarily for a relaxation in the requirement to buy insured annuities at 75. This paper had been promised in the 2001 pre Budget report.
- The only good news is that the Government acknowledges that there is an issue to be addressed (they could do little else following the success of David Curry's Private Member's Bill on 11th January). However, it is quite disappointing to read that they plan to hold their present position, and in particular the age 75 rule.
- There are a couple of (complicated) proposals to ameliorate the position, but they are unlikely to do so. These are a proposed new "limited period" annuity to allow people to buy an income for a fixed term of years prior to age 75, and thereby new opportunities to take variable levels of income in certain periods of retirement. The second proposal is to permit transfer from one insurance provider to another. It is hard to get excited by either of these proposals.
- The Government remain of the view that age 75 is the optimum age at which pensioners should be required to purchase an insured annuity. The Government are also adamant that there should be no opportunity to withdraw capital from pension schemes, albeit subject to a tax charge.
- The Government say that their emphasis is to give a "better choice" in retirement, but by their actions and these proposals they show clearly that they prefer instead to limit personal choice.
- The paper says that income drawdown, which became possible in 1995 in spite of Inland Revenue objections, is now attracting one-quarter by value of retirement savings.
- The only advice offered to those who want to ensure that remaining pension wealth should go to their family on death is that they should use part of their tax-free lump sum to take out life insurance cover for the benefit of their heirs. There is no acknowledgement of the terrible position of those in serious ill-health having to buy annuities.
- The paper (which runs to 66 pages) can be down-loaded from the Inland Revenue's website www.inlandrevenue.gov.uk/pensionschemes/consultation.htm.
Barnett Waddingham will be making strong representations on these proposals. Furthermore, Mark Howard, a member of the committee of the Association of Pensioneer Trustees, will be involved in preparing their submission, as will Adrian Waddingham, the Secretary of the Association of Consulting Actuaries in preparing their submission.
Barnett Waddingham - 6 February 2002