Calls for compulsory annuity purchase in the UK to be scrapped

News - Savings

Written by Ray Clancy

Friday, 17 September 2010 10:20

Ending compulsory annuity purchase should be the first step toward more radical change in the UK pension system, it is claimed.

Responding to the Treasury’s consultation, George Ladds, head of pension and investment research at Fair Investment Company says he supports ending compulsory annuity purchase but would like to see bigger changes like a minimum fund for drawdown and ISAs blended with pensions.

‘I thoroughly support ending the effective requirement to purchase an annuity by 75 as it gives people much more choice and flexibility, allowing them to choose how and when they want to use their pension fund,’ he said.

‘But, just because pensioners may no longer be forced to buy an annuity at 75 doesn't mean annuities won’t still play an important role within the pension sector. Annuities will still be the choice of many, so it is important that those who do choose them understand their right to use the open market option, and shop around for the best quotes, whatever age they are buying their annuity.,’ he explained.

‘It is also important they are aware that if they have a lifestyle or medical condition then they could get enhanced annuities,’ he added.

He thinks it is also important that pensioners fully understand all the options. ‘If they are no longer forced to buy an annuity at 75, many may choose never to buy one, and instead go for a drawdown option. This is a perfectly viable choice for many, and I would never say one is better that the other because it all depends on individual circumstances and I would argue that drawdown is really only suitable for those with a fund of £100,000. I therefore feel that as part of any pension reform, the Government should also create some sort of minimum fund limit for drawdown,’ Ladds explained further.

‘I also feel this first consultation should be the first step into much more radical change in order to give younger people a better understanding of the importance of pensions and ensure they are saving enough for a comfortable retirement.

‘While many would support automatic enrolment, I would urge the Government to make much bigger changes and blend ISAs with pensions and state pensions. This would make pensions much more relevant to young people and give them the encouragement they need to save for the future,’ he added.