The measure that was widely expected by those within the annuity industry was unveiled in the budget today when the government confirmed it would be scrapping the annuity age limit. The new rules will not come into effect until April 2011 but those who will reach 75 before that time will not be at a disadvantage. Basically the age will be raised from 75 to 77 in the period before the legislation is passed. This change in policy is set to benefit those with larger than average pension funds, typically over £100,000 . They will now have more flexibility when it comes to how they invest their pension fund. At the moment, when you reach 75 you are compelled to by an annuity or opt for ASP, Alternatively Secured Pension.
Many in the pension annuity industry have been calling for this change for some time. Tom McPhail from Hargreaves Lansdown commented that…”…the announcement of a consultation on abolishing compulsory annuitisation from April 2011 will go a long way towards addressing many people’s instinctive reservations about committing money to a pension. This should serve to reinvigorate investors’ appetite for long-term investments.”
This age limit has come under examination much more intensely in recent years because rates for annuities have been falling, making them less attractive to savers. For example a £100,000 two decades ago would have yielded an annual income of £15,600 for life. Now it would generate just £5,860 on an average annuity. Another issue is that if the annuitant dies prematurely, the insurer in most cases keeps the unpaid income, preventing annuitants from bequeathing the remainder of their pension fund. But it must be noted that if an annuitant lives longer than expected, they will receive an income until they die, even if that is longer than the insurer calculated when they took out their annuity. The government will now have the task of calculating the inheritance tax level on funds passed on from an annuity. Andrew Tully from Standard Life said that…”…the rate of tax deducted when passing on pension benefits at death is also excessive at 82pc and we hope this will be reviewed.”
