Compulsory annuitisation at age 75 looks set to be removed under expected pension reforms from the new coalition government. Writing on the BBC news website, pension guru Billy Burrows of Burrows and Cummins said that “…we expect the requirement to buy an annuity at age 75 to be removed and in its place a set of rules will come into effect“. Currently when you reach age seventy five you must buy an annuity or opt for an alternatively secured pension or ASP. However many argue that the compulsory age for an annuity was sanctioned when average life expectancy was much lower. Nowadays a seventy five year old can expect to live around ten years longer.
This age for buying an annuity is seen by some as restrictive, especially considering that rates for annuities are at an historical low. Moreover if you die prematurely then you leave your unused pension to the insurer, meaning that you are unable to bequeath your savings to your next of kin. Lord Grantley even went as far as to describe an annuity as a “lousy form of investment.” What the government will want to do is to balance the requirement of retirees to ensure they have a stable and lasting income in retirement against the restrictiveness of pension annuities. If a retiree ploughs all their income into something more risky such as drawdown, they could potentially become more reliant on the state if the investments do not make a significant enough return.
To this end three new rules are expected to be drawn up to answer the following issues…
- Ensure a minimum level of income is guaranteed from whatever option is chosen.
- What is maximum that can be withdrawn from the fund and when?
- What happens on the death of the retiree?
When the change is enacted in anyone’s guess but with such as radical legislative program expected in the Queen’s speech, this issue may not be a top priority.
