UK pension expert Dr Ros Altmann has said that government changes to the rules governing pensions will only benefit a small minority of savers, whilst the changes needed to help the majority have not been implemented. Among the changes proposed by the coalition is the promise to end compulsory annuitisation as well a new system which will allow retirees to access their fund on a much more flexible basis. The changes are aimed at encouraging more people to save for retirement, amidst fears that as many as seven million people could reach retirement with little or no savings. Dr Altmann says that… “anything that makes things simpler and makes it easier for people to use their money is to be applauded.”
However, although Dr Altmann backs the ending of compulsory annuity purchase, she has highlighted the shortcomings over other changes. Under the new rules, those who can prove they can meet the minimum income requirement (MIR) will be able to access as much of their pension income as they choose. Below this level the amount retirees can take will be capped. Given the fact that retirees will have to prove they have an income of around £10,000 per year, it is argued the new rules will only be of an advantage to those reitrees with large pension funds. Indeed Dr Altmann says that “…only people with pension funds above around £200,000 which would generate £6,000 a year inflation linked income, will benefit from the new measures.”
Many in the pension industry will agree with this point and argue that the real change that is needed is for the FSA to prevent insurers offering a default annuity to would-be annuitants. With 40% of annuitants thought to be eligible for annuity enhancement but only 10% actually getting improved rates, the real issue is not the flexibility for wealthy pensioners, it is the lack of information / guidance given to the majority of retirees. With no actual requirement for annuitants to receive advice over how to get the best rates, millions miss out on a potentially higher income every year.
