Plans to abolish compulsory annuities

Government may scrap pension obligation

By Stephen Hunt, 16th July 2010

Compulsory annuities for the elderly are likely to be binned, government plans have revealed.

Under the current rules pensioners are obliged to take out an annuity when they reach 75, but today proposals to simplify these rules have been announced.

An annuity is a policy through which one's pension fund is converted into a regular income for the rest of one's lifetime. A lump sum comprising a quarter of the money available may be withdrawn tax-free, but the remainder must be converted into an annuity at some point.

George Osborne originally intimated in the budget that the government wanted to raise this annuity deadline from 75 to 77, but today's announcement indicate that it may be done away with altogether.

The developments are particularly good news for wealthier pensioners who can now keep their pension funds until a later point.

Tom McPhail of Hargreaves Lansdown, leading financial service providers, welcomed the change. He said: "This consultation is a revolutionary change, putting investors in charge of their own retirement plans.

"The more you save for retirement, the more control and flexibility you will have and ultimately, the more you will be able to pass on to your family on death. Combined with the tax breaks available on pensions, these simple messages will be very popular with investors."

However, the TUC were scathing in their reaction.

"This is only an issue for the top few per cent of the richest pensioners who do not need to worry about whether their pension pot will run out before they die," said general secretary Brendan Barber.

"There is a lot wrong with money purchase pensions and our annuities system, but changes to the age limit without a more fundamental look at the whole issue is not the way to proceed."

Claims Financial