By Jenne Mannion Those in occupational pension schemes could be allowed to buy investment-linked ann...
By Jenne Mannion
Those in occupational pension schemes could be allowed to buy investment-linked annuities by the end of the year.
The increase in flexibility, first reported in Investment Week last week, does not apply to the protected rights portion of the pension as yet, although this might change in the future.
Last month, when replying to a parliamentary question, pensions minister Jeff Rooker said the change would be introduced through amendments to the Child Support, Pensions and Social Security Bill.
He said: "We asked for views from the pensions industry, employers and the public on whether it would be right to relax the current indexation rules for money purchase pension schemes, to allow schemes to offer investment-linked annuities to any members who might wish to choose this option as an alternative to a traditional indexed annuity.
"Investment-linked annuities enable the annuitant to benefit from growth in a range of underlying investments after retirement, although this goes hand in hand with a risk of possible falls in pension income if the investment performance is poor."
Rooker added that there would be no introduction of mandatory guarantees to protect the level of pension paid by investment-linked annuities.
He said feedback had indicated that this would hamper product design and could have a significant effect on the potential growth of an annuitant's future income.
While there is no specific time scale for the proposed change, it is anticipated that, if the amendments are passed quickly, it could be in place by the end of the year, according to Roderic Rennison, retail director at Mercury Life.
He said: "While many will still prefer conventional annuities, this will offer choice, a larger scope for investment. This will also give a boost to this market which is not yet highly established."
Nigel Stammers, pensions strategy manager at Clerical Medical, welcomed the decision. He added that it was positive that investment-linked annuities for occupational schemes would not need extra guarantees.
Stammers said this would have been unnecessary because a choice of fixed annuity, with-profits or unit-linked annuity all offer different degrees of protection to suit all needs.
Peter Jordan, pensions brand manager at Skandia, said although the added flexibility would be an improvement, it remained to be seen whether it would offer significant benefits. He added: "The relaxation of rules would currently apply to clients with big funds, who in any case would probably find their way into a personal pension where they can buy this type of annuity in any case."
To promote 'long-term investment'
Switching 'hard and expensive'
Smaller funds still packing a punch
To drive progress