Raising the minimum retirement age to 55 will be a boost to the drawdown market, according to the An...
Raising the minimum retirement age to 55 will be a boost to the drawdown market, according to the Annuity Bureau.
The Government is phasing in the age increases from 50-75 to 55-80 between 2010 and 2020 in two-year increments starting with the minimum age at which a pension can be drawn rising to 51 in 2012, 52 in 2014 and so on.
The Government report, Winning the Generation Game, claims that even though many people are living and staying fit for longer, a record number are leaving work early. It also states that one third of those aged between 50 and 65, some 2.8 million, do not work, costing the UK economy £3-5bn in benefit payments and lost taxes.
The Annuity Bureau welcomed the Government's higher age limit as "a huge boost to the growing income drawdown market," which it expects to draw in £2.5bn of investments this year.
It said an annuity compulsion age of 80 is needed as mortality rates indicate that most people currently aged between 50 and 75 will live beyond 80. For example, a man aged 50 should live for another 34 years while a woman can expect to live for a further 37 years. A 65-year-old man is expected to live 19 more years and a woman 22.
Ian Naismith, pensions strategy manager at Scottish Widows, said both ends of the retirement age spectrum might be adversely affected by the government's plans.
He claimed younger investors may put off starting a pension and there would be a drain on income drawdown affecting pensioners who defer their annuity purchase. Naismith described an annuity compulsion age of 80 "the worst of both worlds". He prefers the government leave the maximum drawdown age at 75.
He said: "The longer you use drawdown, the more growth you need to replace the capital you've used up and the effect is a lot worse between 75 and 80 than 70-75. It would require growth in the region of 11% to 12% pa to sustain the value of a pension fund in the five years to age 80."
Nigel Chambers, managing director of IFA firm Johnstone Douglas, said he thought there should be no compulsion to buy an annuity at all.
He said: "Annuity compulsion forces people into the form of investment that has historically provided the lowest returns because it is the safest. It would be better to develop versions of drawdown that allow pensioners to keep their money in equities for longer."
Chambers added that, while the average person would not notice the change, it would affect high net worth individuals and staff laid off in their early fifties.
He said that the Government needed to send out a loud and clear message to the public about the realities of retirement.
"It's difficult enough to make people save for their retirement as it is and measures that make it more difficult are unwelcome," Chambers said.
Meanwhile, both Age Concern and Unison claimed the Government was fudging the issue of ageism, where employers laid off or prematurely retired staff of pensionable age.
Both organisations called on the government to implement anti-ageism laws.
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