Government consults on annuity reforms

by Gill Montia

Story link: Government consults on annuity reforms

The Government has launched an eight-week consultation on proposals to remove the requirement to turn pension savings into an annuity by the age of 75.

The requirement has existed since 1976, when the average life expectancy of a healthy 65 year-old male was 13 years, but with annuity rates having plummeted during the credit crisis some savers lost out badly, having been forced to buy an annuity simply because of an impending 75th birthday.

In addition when an annuity holder dies shortly after buying their annuity, the provider may retain the bulk of their pension savings.

As announced in the June Budget, the current rules will end in April 2011 when new measures should give people greater flexibility to choose the retirement options that suit them best.

According to Financial Secretary to the Treasury Mark Hoban: “This consultation puts forward reforms that will replace outdated and overly complex pensions tax rules with a new system that gives individuals greater freedom and choice.”

The consultation closes on the 10th September and draft legislation for the reforms will be published in the autumn.

The UK currently has the largest annuities market in the world: 450,000 annuities were sold last year with a value of nearly £11 billion, according to the Association of British Insurers.