Earlier this week, we wrote about how, under current regulation, a person is forced to buy an annuity no later than the age of 75 and how some were hoping that the age limit might be increased in this week’s Budget.
The age limit wasn’t increased this week but the Investment Management Association (IMA) has produced a report recommending this change and are waiting to hear the government’s response. They would actually like to se the age limit removed completely.
One provider of solutions for retired people, Just Retirement, has urged caution. They believe that the report is flawed because it does not recognise the different types of annuities currently available. These include enhanced and repaired annuities, which offer a higher level of income to those with a shorter life expectancy.
Head of Retirement Solutions, Nigel Barlow said:
“There is a need to carefully consider all the options for income at retirement and we must beware of throwing out the baby with the bathwater. Flexibility and increased risk taking may be great for those that have large funds, typically a quarter of a million pounds or more, but the truth is that the vast majority of individual funds are nowhere near this value.”
He went on to say that through a personal account, even the IMA calculates it would take someone 28 years to save up a fund of £100,000 and even then it would likely be unsuitable for a drawdown retirement, it just wouldn’t be enough. The security of an annuity is what attracts many people as it offers a lifetime guarantee.
In principle, the ability to pass funds on to heirs is attractive. In reality, the issues of increasing life expectancy and levels of savings mean that most will be more concerned about outliving their own income. An annuity guarantees a secure income for life, however long that may be. It is also the simplest solution to understand thus benefiting peace of mind in retirement.
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