The government has declared its intention to abolish the requirement to purchase a pensions annuity with your pension income by the age of 75.
This makes it possible for those drawing pension income in an increasing healthy and long-lived society – the so-called ‘welderly’ - to retain ownership of pension savings, rather than hand our pension income to an insurance company in return for an annuity which will pay us a regular retirement income for life.
However, purchasing a lifetime annuity is likely to remain the most popular means of pensions planning, despite these recent changes in the law, according to a new poll of insurers and industry experts unveiled this month*.
With male life expectancy in the UK now standing at 86 and female life expectancy higher still at 89, the ‘welderly’ will be a growing force in the decades to come.
The advantage of not taking an annuity is that pensions savers can pass their pension savings on to their children and grandchildren, by making the corresponding arrangements in their will.
However, experts predict that the vast majority of people will continue to purchase an annuity with their pension income. The driving force behind this belief is that most people have a relatively small amount of pensions savings built up in their ‘pension pot’, reflecting the view of many experts that those with a pot of less than £100,000 may be better served by the reliable income from an annuity, rather than the more risky strategy of leaving their pension savings in the stock market with an ‘income drawdown’ investment.
Fears that new legislation under the EU’s Solvency II programme would increase the cost of annuities, and reduce pension income, by imposing more stringent capital adequacy requirements on insurance companies, are rejected by half of those surveyed.
*Source: Xafinity Paymaster June 2010
